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 B, instead of selling it at split-off?

Question

Quizplus · Accepted Answer

Selling Product B at split-off would yield $15 * 10,000 = $150,000. Processing further costs an additional $20,000 and would sell for $16 * 10,000 = $160,000. The net gain from processing further is $160,000 - $150,000 - $20,000 = -$10,000, indicating a decrease in profit.

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