Paulsen Corporation makes two products, W and P, in a joint process. At the split-off point, 50,000 units of W and 60,000 units of P are available each month. Monthly joint production costs are $290,000. Product W can be sold at the split-off point for $5.60 per unit. Product P either can be sold at the split-off point for $4.75 per unit or it can be further processed and sold for $7.20 per unit. If P is processed further, additional processing costs of $3.10 per unit will be incurred.
-What would the selling price per unit of Product P need to be after processing in order for Paulsen Corporation to be economically indifferent between selling P at the split-off point or processing P further?
A)$7.85
B)$8.58
C)$9.49
D)$11.68

Question

Quizplus · Accepted Answer

To be indifferent, the additional revenue from processing further should equal the additional cost. Selling at split-off gives $4.75. Further processing costs $3.10, so the selling price after processing should be $4.75 + $3.10 = $7.85.

Paulsen Corporation Makes Two Products, W and P, in a Joint