Green Products Co. recycles plastics to produce a variety of products. One of their processes yields two different outputs: Construction-grade (used in outdoors benches and tables), and Compression-type, used to create ergonomic flooring. One production run produces 200 pounds of Construction-grade plastics, and 100 pounds of Compression-type plastics.
Green Products can process the plastics further, or can sell the raw materials to other companies. The process to produce one batch (before the split-off point) requires $120 of direct materials, $400 of direct labor, and $160 of variable overhead, with an allocation of $100 of fixed overhead. At the split-off point, Construction-grade plastics sell for $4/pound, and Compression-type plastics sell for $2/pound. Further processing of one batch requires the following:
Construction:
Direct Materials: $80
Direct Labor: $300
Variable Overhead: $100
Fixed Overhead: $20
Selling price of finished product: $1,200 per batch
Compression:
Direct Materials: $60
Direct Labor: $80
Variable Overhead: $40
Fixed Overhead: $20
Selling price of finished product: $500 per batch
Which product(s) should be processed further? If the optimal choices regarding each product are made, what is the Gross Profit realized on one batch?

Question

Green Products Co. recycles plastics to produce a variety of products. One of their processes yields two different outputs: Construction-grade (used in outdoors benches and tables), and Compression-type, used to create ergonomic flooring. One production run produces 200 pounds of Construction-grade plastics, and 100 pounds of Compression-type plastics. 
Green Products can process the plastics further, or can sell the raw materials to other companies. The process to produce one batch (before the split-off point) requires $120 of direct materials, $400 of direct labor, and $160 of variable overhead, with an allocation of $100 of fixed overhead. At the split-off point, Construction-grade plastics sell for $4/pound, and Compression-type plastics sell for $2/pound. Further processing of one batch requires the following:
Construction:
Direct Materials: $80
Direct Labor: $300
Variable Overhead: $100
Fixed Overhead: $20
Selling price of finished product: $1,200 per batch
Compression:
Direct Materials: $60
Direct Labor: $80
Variable Overhead: $40
Fixed Overhead: $20
Selling price of finished product: $500 per batch
Which product(s) should be processed further? If the optimal choices regarding each product are made, what is the Gross Profit realized on one batch?

Quizplus · Accepted Answer

The Answer of Green Products Co. recycles plastics to produce a variety of products. One of their processes yields two different outputs: Construction-grade (used in outdoors benches and tables), and Compression-type, used to create ergonomic flooring. One production run produces 200 pounds of Construction-grade plastics, and 100 pounds of Compression-type plastics. 
Green Products can process the plastics further, or can sell the raw materials to other companies. The process to produce one batch (before the split-off point) requires $120 of direct materials, $400 of direct labor, and $160 of variable overhead, with an allocation of $100 of fixed overhead. At the split-off point, Construction-grade plastics sell for $4/pound, and Compression-type plastics sell for $2/pound. Further processing of one batch requires the following:
Construction:
Direct Materials: $80
Direct Labor: $300
Variable Overhead: $100
Fixed Overhead: $20
Selling price of finished product: $1,200 per batch
Compression:
Direct Materials: $60
Direct Labor: $80
Variable Overhead: $40
Fixed Overhead: $20
Selling price of finished product: $500 per batch
Which product(s) should be processed further? If the optimal choices regarding each product are made, what is the Gross Profit realized on one batch?