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 products should be sold after further processing, we need to consider the incremental revenue and incremental costs of continuing with additional processing.

From the information provided, we can calculate the incremental revenue and incremental costs for each product:

Product A: Additional revenue = $80,000; Additional costs = $60,000; Incremental profit = $20,000
Product B: Additional revenue = $120,000; Additional costs = $100,000; Incremental profit = $20,000
Product C: Additional revenue = $100,000; Additional costs = $90,000; Incremental profit = $10,000

Based on these calculations, both Products B and C have an incremental profit of $20,000, which is higher than the incremental profit for Product A. Therefore, the best choice is to sell Products B and C after further processing.

Dundee Company Currently Produces Three Products from a Joint Process