The Lake Corp. takes a single ingredient and makes it into three different products. The joint costs of buying the ingredient and dividing it into these three products are $10,000 per metric ton of the ingredient. From every metric ton of ingredients, the company produces 400 kilograms of Product A, 400 kilograms of Product B, and 200 kilograms of Product C. Product A can be sold at the split-off point for $10 per kilogram, B can be sold for $15 per kilogram, and C can be sold for $20 per kilogr

Question

Quizplus · Accepted Answer

To determine the best choice, we need to use the net realizable value (NRV) method.

Product A:
400 kg x $10 = $4,000 NRV per metric ton

Product B:
400 kg x $15 = $6,000 NRV per metric ton

Product C:
200 kg x $20 = $4,000 NRV per metric ton

Total NRV per metric ton = $14,000

Subtracting joint costs of $10,000 per metric ton, we get $4,000 as the profit per metric ton.

Therefore, we should choose the product with the highest profit per metric ton, which is Product B with $6,000.

Thus, the best choice is D.