Lido Products produces two products (A and B) from a joint process. The joint cost of production is $80 000. Five thousand units of Product A can be sold at split-off for $20 per unit or processed further at an additional cost of $20 000 and sold for $25 per unit. Ten thousand units of Product B can be sold at split-off for $15 per unit or processed further at an additional cost of $20 000 and sold for $16 per unit.
What is the difference in profit if Lido decides to process further Product A, instead of selling it at split-off?

Question

Quizplus · Accepted Answer

Selling Product A at split-off would generate $100,000 (5,000 units * $20/unit). Processing further costs $20,000 and the sales value after processing is $125,000 (5,000 units * $25/unit). The difference in profit is $125,000 - $100,000 - $20,000 = $5,000 increase.

Lido Products Produces Two Products (A and B) from a Joint