Copeland Inc. produces product X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade (i.e., further process) the product to become Xylene. The following information has been gathered:

(1) Selling price per pound of X-547.
(2) Variable manufacturing costs of the upgrade process.
(3) Avoidable fixed costs of the upgrade process.
(4) Selling price per pound of Xylene.
(5) Joint manufacturing costs to produce X-547.

Which of the items should be reviewed when making the upgrade decision?

Question

Copeland Inc. produces product X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade (i.e., further process) the product to become Xylene. The following information has been gathered:

(1) Selling price per pound of X-547. 
(2) Variable manufacturing costs of the upgrade process. 
(3) Avoidable fixed costs of the upgrade process. 
(4) Selling price per pound of Xylene. 
(5) Joint manufacturing costs to produce X-547.

Which of the items should be reviewed when making the upgrade decision?

Quizplus · Accepted Answer

When making the upgrade decision, we need to consider all costs and revenues associated with selling X-547 or upgrading it into Xylene. This includes the selling price of X-547, the variable manufacturing costs of the upgrade process, the avoidable fixed costs of the upgrade process, and the selling price of Xylene. Additionally, we need to consider the joint manufacturing costs to produce X-547, as this cost has already been incurred and will impact the overall profitability of upgrading the product. Therefore, items 1, 2, 3, and 4 should be reviewed when making the upgrade decision. Item 5 is also important, but it is a sunk cost and should not affect the decision making.