A joint production process at Sunnybrook Farms results in two products,strawberry syrup and strawberry jam.Strawberry syrup can be further processed into strawberry juice,and strawberry jam can be further processed into specialty jams.The following cost and activity data relate to these two products:

If strawberry syrup is processed further into the specialty strawberry juice,what would be the overall effect on operating income assuming the same number of units will be produced?

Question

A joint production process at Sunnybrook Farms results in two products,strawberry syrup and strawberry jam.Strawberry syrup can be further processed into strawberry juice,and strawberry jam can be further processed into specialty jams.The following cost and activity data relate to these two products:

If strawberry syrup is processed further into the specialty strawberry juice,what would be the overall effect on operating income assuming the same number of units will be produced?

Quizplus · Accepted Answer

The incremental revenue from processing strawberry syrup into specialty strawberry juice can be calculated as follows:
(($20 - $10) + ($15 - $5)) x 5,000 units = $100,000
The incremental cost of processing strawberry syrup into specialty strawberry juice would be:
$50,000 + ($2 x 5,000 units) = $60,000
Therefore, the incremental operating income would be:
$100,000 - $60,000 = $40,000
This represents a net increase in operating income of $2,000 per unit ($40,000/5,000 units) compared to selling strawberry syrup alone. Therefore, the overall effect on operating income would be a net increase of $2,000 x 5,000 units = $10,000. However, since the question asks for the effect on operating income per unit, the correct answer is C, a net increase in operating income of $2,000 per unit.

A Joint Production Process at Sunnybrook Farms Results in Two