Earthworks Co. produces three products from a common raw material. The joint costs for a typical year are as follows:
The annual revenues from each product are as follows:
Management is considering processing Product Z beyond the split-off point, which would increase the value of Product Z to $57,000. To process Product Z further, Earthworks must rent processing facilities at an annual cost of $17,500 and will incur additional labor of $5,500.
What will be the effect on annual operating income if Earthworks decides to process Product Z further?
A) $23,000 incremental loss
B) $34,000 incremental income
C) $ 4,000 incremental income
D) $14,312.50 incremental income
E) None of the above

Question

Earthworks Co. produces three products from a common raw material. The joint costs for a typical year are as follows:
The annual revenues from each product are as follows:
  Management is considering processing Product Z beyond the split-off point, which would increase the value of Product Z to $57,000. To process Product Z further, Earthworks must rent processing facilities at an annual cost of $17,500 and will incur additional labor of $5,500.
What will be the effect on annual operating income if Earthworks decides to process Product Z further?
A) $23,000 incremental loss 
B) $34,000 incremental income 
C) $ 4,000 incremental income 
D) $14,312.50 incremental income 
E) None of the above

Quizplus · Accepted Answer

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