Dundee Company currently produces three products from a joint process.The joint process has total costs of $250,000 per month.All three products,A,B & C,are immediately saleable as they come out of the joint process.Alternatively,any of the products could continue on with additional processing and be sold as a more complete product.The following information is available: Which of the products should be sold after further processing?
A)Product A only
B)Products B and C
C)Products A and C
D)Product B only

Question

Dundee Company currently produces three products from a joint process.The joint process has total costs of $250,000 per month.All three products,A,B & C,are immediately saleable as they come out of the joint process.Alternatively,any of the products could continue on with additional processing and be sold as a more complete product.The following information is available:  Which of the products should be sold after further processing?
A)Product A only 
B)Products B and C 
C)Products A and C 
D)Product B only

Quizplus · Accepted Answer

To determine the best choice for further processing, we need to consider the incremental revenue and incremental costs associated with each product.
For Product A, the incremental revenue is $40,000 ($180,000 - $140,000) and the incremental cost is $100,000. Therefore, the incremental profit is $-60,000. Selling Product A after further processing would result in a loss.
For Product B, the incremental revenue is $120,000 ($300,000 - $180,000) and the incremental cost is $200,000. Therefore, the incremental profit is $-30,000. Selling Product B after further processing would also result in a loss.
For Product C, the incremental revenue is $160,000 ($340,000 - $180,000) and the incremental cost is $150,000. Therefore, the incremental profit is $10,000. Selling Product C after further processing would result in a profit.
Thus, the best choice(s) for further processing would be Products B and C, as they result in a lower overall loss than selling Product A after further processing.

Dundee Company Currently Produces Three Products from a Joint Process