A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J $200 $100 $400
K 300 200 600
L 100 50 140
M 20 10 40
Assume that K is processed further and that management is considering an alternative to the current process. The new separable cost of processing would be $250. If the firm is to be no worse off, the product must sell for at least:
A)$550
B)$650
C)$750
D)$850

Question

Quizplus · Accepted Answer

To determine the minimum selling price for product K, we need to consider the original separable cost ($200) as a sunk cost and only focus on the additional cost of further processing ($250 - $200 = $50). The total separable cost for product K after further processing would be $200 + $50 = $250. 
To ensure that the firm is not worse off, the revenue from selling product K after further processing should at least cover this total separable cost of $250. Therefore, the minimum selling price for product K would be $250 + $200 = $450. 
However, the question asks for the minimum selling price to ensure that the firm is not worse off when compared to the current process. This means that we need to compare the total revenue for product K after further processing ($600) under the current process to the total revenue for product K after further processing ($450 + $200 = $650) under the alternative process. 
Since the total revenue for product K would be higher under the alternative process, the best choice would be to switch to the new process and sell product K for at least $650.

A Joint Input Costing $500 Results in Four Distinct Products