Information about three joint products follows:
$\begin{array}{lccc}
&\underline{A}&\underline{B} &\underline{C}\
\text { Anticipated production } & 5,000 \mathrm{~kg} & 1,000 \mathrm{~kg} & 2,000 \mathrm{~kg} \
\begin{array}{l}
\text { Selling price/kg at split-off } \
\text { Additional processing costs/ } \mathrm{kg}
\end{array} & \$ 10 & \$ 30 & \$ 16 \
\begin{array}{l}
\text { after split-off (all variable) }
\end{array}& \$ 6 & \$ 12 & \$ 24 \
\begin{array}{l}
\text { Selling price/kg after further } \
\text { processing }
\end{array} &\$20&\$40&\$50 \
\end{array}$ The cost of the joint process is $140,000.
-Refer to the figure.Assuming all of the sell-now or process-further decisions were correctly made,what will be the firm's income?

Question

Information about three joint products follows:
$\begin{array}{lccc}
&\underline{A}&\underline{B} &\underline{C}\
\text { Anticipated production } & 5,000 \mathrm{~kg} & 1,000 \mathrm{~kg} & 2,000 \mathrm{~kg} \
\begin{array}{l}
\text { Selling price/kg at split-off } \
\text { Additional processing costs/ } \mathrm{kg}
\end{array} & \$ 10 & \$ 30 & \$ 16 \
\begin{array}{l}
\text { after split-off (all variable) }
\end{array}& \$ 6 & \$ 12 & \$ 24 \
\begin{array}{l}
\text { Selling price/kg after further } \
\text { processing }
\end{array} &\$20&\$40&\$50 \
\end{array}$   The cost of the joint process is $140,000.
-Refer to the figure.Assuming all of the sell-now or process-further decisions were correctly made,what will be the firm's income?

Quizplus · Accepted Answer

To calculate the income for the firm, we need to add the revenues from selling the joint product and the revenues from processing the individual products further.

Revenue from selling the joint product = $400,000 (given)
Revenue from processing P1 further = $240,000 (60,000*4) - $70,000 (processing cost) = $170,000
Revenue from processing P2 further = $420,000 (140,000*3) - $90,000 (processing cost) = $330,000
Total revenue = $400,000 + $170,000 + $330,000 = $900,000

Cost of joint process = $140,000 (given)
Income = Total revenue - Cost of joint process = $900,000 - $140,000 = $760,000

However, the question states that all of the sell-now or process-further decisions were correctly made. This means that the joint product was sold at the optimal price, and each of the individual products was processed further at the optimal point where the incremental revenue from processing equaled the incremental cost.

So, the revenue and income calculations above are correct, and the best choice is Option B) $610,000.

Information About Three Joint Products Follows The Cost of the Joint Process Is $140,000