The Wyeth Company produces three products-A,B,and C-from a single raw material input.Product A can be sold at the split-off point for $40,000,or it can be processed further at a total cost of $15,000 and then sold for $58,000.Joint product costs total $60,000 annually.What is the correct course of action regarding Product A?
A) It should be discontinued since revenues after further processing are less than total joint product costs.
B) It should be sold at the split-off point.
C) It should be processed further and then sold.
D) It should be processed further only if its share of the total joint product costs is less than the incremental revenues from further processing.

Question

Quizplus · Accepted Answer

Processing Product A further and selling it for $58,000 generates a higher revenue than selling it at the split-off point for $40,000. Although the total cost of processing Product A further is $15,000, the incremental revenue of $18,000 ($58,000 - $40,000) more than covers the additional cost. Therefore, it is economically beneficial to process Product A further and then sell it.

The Wyeth Company Produces Three Products-A,B,and C-From a Single Raw