The Carter Corporation makes products A and B in a joint process from a single input, R. During a typical production run, 50,000 units of R yield 20,000 units of A and 30,000 units of B at the split-off point. Joint production costs total $90,000 per production run. The unit selling price for A is $4.00 and for B is $3.80 at the split-off point. However, B can be processed further at a total cost of $60,000 and then sold for $7.00 per unit.If product B is processed beyond the split-off point, the financial advantage (disadvantage) as compared to selling B at the split-off point would be:
A) $36,000 per production run
B) $96,000 per production run
C) ($42,000) per production run
D) ($10,000) per production run

Question

Quizplus · Accepted Answer

The financial advantage of processing product B beyond the split-off point is calculated by comparing the additional revenue from selling the processed product against the additional processing costs. Selling B at the split-off point would bring in 30,000 units * $3.80 = $114,000. Processing B further and selling at $7.00 per unit yields 30,000 units * $7.00 = $210,000. The additional processing cost is $60,000. Therefore, the financial advantage is $210,000 - $114,000 - $60,000 = $36,000.

The Carter Corporation Makes Products a and B in a Joint