Served Inc. manufactures two products, salad plates and platters, from a joint process. Salad plates are allocated $7900 of the total joint costs of $26,000. There are 3500 salad plates produced and 3500 platters produced each year. Salad plates can be sold at the split-off point for $10 per unit, or they can be hand painted for additional processing costs of $8600 and sold for $19 for each deluxe salad plate. If the salad plates are processed further and made into deluxe plates, the effect on operating income would be
A)$35,000 net increase in operating income.
B)$22,900 net decrease in operating income.
C)$35,000 net decrease in operating income.
D)$22,900 net increase in operating income.

Question

Quizplus · Accepted Answer

The additional processing costs for the salad plates are $8,600. The increase in selling price from $10 to $19 per unit results in an additional $9 per unit. For 3,500 units, this increase amounts to $31,500 ($9 * 3,500). Subtracting the additional processing costs of $8,600 from $31,500 gives a net increase in operating income of $22,900.