Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: Which products should Davidian process further?
A) all
B) none
C) all except Z
D) X and Y

Question

Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:  Which products should Davidian process further?
A) all 
B) none 
C) all except Z 
D) X and Y

Quizplus · Accepted Answer

To determine which products to process further, we need to compare the additional processing costs to the additional revenue that can be earned from selling the processed products. Based on the given data, we can calculate the following additional processing costs and revenue for each product:

- Product W: additional processing cost of $20,000, additional revenue of $30,000
- Product X: additional processing cost of $50,000, additional revenue of $70,000
- Product Y: additional processing cost of $30,000, additional revenue of $45,000
- Product Z: no additional processing cost, additional revenue of $25,000

Comparing the additional revenue to the additional processing cost, we can see that processing Product X and Y will result in the highest net revenue ($20,000 and $15,000 respectively). Therefore, the best choice is to process Products X and Y further.

Davidian Company Uses a Joint Process to Produce Products W