3. (20 pts) The Edgerton Co. Produces products A, B, and C from a joint process.
ID: 2806299 • Letter: 3
Question
3. (20 pts) The Edgerton Co. Produces products A, B, and C from a joint process. The joint costs for 2013 were $72,000. All three products can be processed further and the pertinent information follows: Item Units Sales Value Sales Value if Added Cost to ProducedAt Split Ofr Processed further Process Further 6,000 4,000 2,000 $25,000 $42,000 41,000 24,000 32,000 $9,000 7.000 10,000 45,000 a) b) To maximize profits, which product(s) should be processed further? If C is to be processed further, what should its final price be to break-even?Explanation / Answer
a) If product sold at spilit off point A B C Total Sales value 25,000 41,000 24,000 90,000 Processing Cost 20,000 32,800 19,200 72,000 Profit at the processing 5,000 8,200 4,800 18,000 Processing cost has been divided in the ratio of sales value If product sold after processing A B C Total Sales value 42,000 45,000 32,000 1,19,000 Processing Cost 20,000 32,800 19,200 72,000 Additional Processing Cost 9,000 7,000 10,000 26,000 Profit at the processing 13,000 5,200 2,800 21,000 Net effect of processing further 8,000 -3,000 -2,000 3,000 To maximise the profit product A to be processed further so maximum profit would be Maximum Profit 13,000 8,200 4,800 26,000 b) If Product C to be processed further than BEP would be: Loss due to processing 2000 No of units processed 2000 Loss per unit due to processing 1 Sales value per unit=32000/2000 16 So Price of the product C should be $17(16+1) to match the profit the sale at split off point
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