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Lido manufactures A and B from a joint process cost = $20,000
Lido manufactures A and B from a joint process cost = $20,000. Six thousand pounds of A can be sold at split-off for $18 per pound or processed further at an additional cost of $10,000 and then sold for $20. Eight thousand pounds of B can be sold at split-off for $14 per pound or processed further at an additional cost of $15,000 and later sold for $20. Required: Which products should be processed further or not? Why ? Give the total dollar impact to income for each product based on your recommendation.
Expert Solution
Product A
sales revenue at split of point = 6000 pounds * $18 per Pound = $108000
sales revenue after further processing = 6000 pounds * $20 per Pound = $120000
Incremental revenue = $120000 - $108000 = $12000
Further processing cost ( Incremental cost) = $ 10000
Net increase in Income = 12000 -10000 = 2000
So here incremental revenue greater than incremental cost it's better to sell after further processing. It would be help to increase the income of $2000 ($12000 - $ 10000)
Product B
sales revenue at split of point = 8000 pounds * $14 per Pound = $ 112000
sales revenue after further processing = 8000 pounds * $20 per Pound = $160000
Incremental revenue = $160000 - $112000 = $ 48000
Further processing cost ( Incremental cost) = $ 15000
Net increase in income = 48000 -15000 = 33000
Here product B also better to sell after further processing.Because incremental revenue greater than incremental cost. It helps to increase the income of $33000 (48000 -15000)
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