A joint production process at Sunnybrook Farms results in two products,strawberry syrup and strawberry jam.The following cost and activity data relate to these two products: $\begin{array}{|l|c|c|}
\hline &\text { Strawberry syrup}&
\text { Strawberry jam}\
\hline \text { Joint costs allocated } & \$ 8,000 & 4,000 \
\hline \text { Number of units produced from joint process } & 2,000 & 2,000 \
\hline \text { Selling price at split-off point } & \$ 2.50 & \$ 1.75 \
\hline \text { Selling price after processing further } & \$ 5.00 & \$ 2.00 \
\hline \text { Cost of processing further } & \$ 3,000 & \$ 2,000 \
\hline
\end{array}$
Strawberry syrup can be sold as-is (at the split-off point)for $2.50 per unit,or it can be process further into a specialty strawberry juice and then sold for $5.00 per unit.If strawberry syrup is processed further into the specialty strawberry juice,what would be the overall effect on operating income?

Question

A joint production process at Sunnybrook Farms results in two products,strawberry syrup and strawberry jam.The following cost and activity data relate to these two products: $\begin{array}{|l|c|c|}
\hline &\text { Strawberry syrup}&
\text { Strawberry jam}\
\hline \text { Joint costs allocated } & \$  8,000 &  4,000 \
\hline \text { Number of units produced from joint process } &  2,000 &  2,000 \
\hline \text { Selling price at split-off point } & \$  2.50 & \$  1.75 \
\hline \text { Selling price after processing further } & \$ 5.00 & \$  2.00 \
\hline \text { Cost of processing further } & \$  3,000 & \$  2,000 \
\hline
\end{array}$
 Strawberry syrup can be sold as-is (at the split-off point)for $2.50 per unit,or it can be process further into a specialty strawberry juice and then sold for $5.00 per unit.If strawberry syrup is processed further into the specialty strawberry juice,what would be the overall effect on operating income?

Quizplus · Accepted Answer

By processing the strawberry syrup into specialty strawberry juice, the company can increase the selling price from $2.50 to $5.00. Therefore, the additional revenue earned from the sale of each unit of specialty strawberry juice will be $5.00 - $2.50 = $2.50. The additional cost incurred in processing the strawberry syrup into specialty strawberry juice is $0.50 per unit. Therefore, the additional contribution margin earned by processing the strawberry syrup into specialty strawberry juice is $2.00 per unit ($2.50 - $0.50). If the company sells 1,000 units of strawberry syrup and processes all of them into specialty strawberry juice, the additional contribution margin earned will be 1,000 units x $2.00 per unit = $2,000. This will result in a net increase in operating income. Therefore, the correct answer is C.

A Joint Production Process at Sunnybrook Farms Results in Two