Kelp Company produces three joint products from seaweed. At the split-off point,
ID: 2579634 • Letter: K
Question
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea Paste, and Sea Powder. Each of these products can either be sold at the split-off point or be processed further. If they are processed further, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows.
Required:
a-1. Compute the incremental benefit (cost) of further processing to these products.
a-2. Which products should Kelp process beyond the split-off point?
b. At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split-off point rather than process it further?
Sales Value and AdditionalCosts If Processed Further Product Pounds
Produced Sales Value at Split-Off Final Sales
Value Additional
Cost Sea Tea 9,000 $ 60,000 $ 90,000 $ 35,000 Sea Paste 4,300 84,900 160,000 50,000 Sea Powder 2,000 70,000 85,000 14,000
Explanation / Answer
Answer:
a-1. Compute the incremental benefit (cost) of further processing to these products.
Sea Tea
Sea Paste
Sea Powder
Sales value if sold at the split-off point (A)
60000
84900
70,000
Sales value if processed further
90000
160,000
85,000
Incremental cost of further processing
35000
50,000
14,000
Incremental proceeds if processed further (b)
55000
110,000
71,000
Incremental benefit (cost) of further processing (A-B)
(5,000
25100
1,000
______________________________________________________
a-2. Which products should Kelp process beyond the split-off point?
Answer: Sea powder and sea paste
_____________________________________________________
b. At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split-off point rather than process it further?
Answer: $25.58
Incremental proceeds if processed further
($160,000 – $50,000)
110,000
Sales value at split-off point
84900
Additional benefit needed to sell at split-off point
25100
Divided by: Number of pounds
÷ 4,300
Incremental benefit per pound needed to sell at split-off point
5.84
Add: Current price per pound at split-off point
($84,900 ÷ 4,300 pounds)
19.74
Minimum price per pound needed to sell at split-off point
25.58
Sea Tea
Sea Paste
Sea Powder
Sales value if sold at the split-off point (A)
60000
84900
70,000
Sales value if processed further
90000
160,000
85,000
Incremental cost of further processing
35000
50,000
14,000
Incremental proceeds if processed further (b)
55000
110,000
71,000
Incremental benefit (cost) of further processing (A-B)
(5,000
25100
1,000
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