Phillippe Inc. manufactures A and B from a joint process (cost = $80,000). Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $25 per pound. If Phillippe decides to process A beyond the split-off point, operating income will:

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The additional revenue from processing A further is $25 - $20 = $5 per pound. For 5,000 pounds, this is $25,000. The additional cost is $20,000, so the net increase in operating income is $25,000 - $20,000 = $5,000.