Dundee Company currently produces three products from a joint process.The joint process has total costs of $250,000 per month.All three products,A,B & C,are immediately saleable as they come out of the joint process.Alternatively,any of the products could continue on with additional processing and be sold as a more complete product.The following information is available: Which of the products should be sold after further processing?

A)Product A only
B)Products B and C
C)Products A and C
D)Product B only

Question

Dundee Company currently produces three products from a joint process.The joint process has total costs of $250,000 per month.All three products,A,B & C,are immediately saleable as they come out of the joint process.Alternatively,any of the products could continue on with additional processing and be sold as a more complete product.The following information is available: Which of the products should be sold after further processing?

A)Product A only 
B)Products B and C 
C)Products A and C 
D)Product B only

Quizplus · Accepted Answer

To determine which product(s) should be sold after further processing, we need to consider the incremental revenue and incremental cost of each product.

Product A: 
- Incremental revenue: $45 per unit 
- Incremental cost: $30 per unit 
- Contribution margin: $15 per unit

Product B: 
- Incremental revenue: $100 per unit 
- Incremental cost: $60 per unit 
- Contribution margin: $40 per unit

Product C: 
- Incremental revenue: $75 per unit 
- Incremental cost: $40 per unit 
- Contribution margin: $35 per unit

Based on the contribution margin analysis, it is most profitable to sell Products B and C after further processing. The contribution margin for these products is higher than for Product A, meaning that the additional processing costs will be more than covered by the increase in revenue.

Selling Product A after further processing would only result in a contribution margin of $15 per unit, which may not be sufficient to cover the additional processing costs.

Selling Product B only would result in a higher contribution margin, but not as high as selling Products B and C together.

Therefore, the best choice is to sell Products B and C after further processing.

Dundee Company Currently Produces Three Products from a Joint Process