Fine Pottery Processors manufactures two products, platters and tureens, from a joint process. Platters are allocated $5,000 of the total joint costs of $25,000. There are 1,500 platters produced and 1,500 tureens produced each year. Platters can be sold at the split-off point for $12 per unit, or they can be processed further into a deluxe platter for additional processing costs of $5,000 and sold for $16 for each deluxe platter. If the platters are processed further and made into deluxe platters, the effect on operating income would be

Question

Quizplus · Accepted Answer

If the platters are sold at the split-off point, the total revenue generated from the sale of platters would be:

$12 per platter x 1,500 platters = $18,000

However, if the platters are processed further, the additional processing costs would be $5,000, and the revenue generated from the sale of deluxe platters would be:

$16 per deluxe platter x 1,500 platters = $24,000

Therefore, the net effect on operating income would be:

$24,000 - $5,000 - $18,000 = $1,000 net increase in operating income.

Hence, choice A is the correct answer.

Fine Pottery Processors Manufactures Two Products, Platters and Tureens, from a Joint