Meehan Gifts manufactures a number of products from the same raw material.Joint processing costs total $4,000.Product Z could be sold at the cut-off point for $6,000 or it can be further processed at a cost of $9,000 and then sold for $14,000.Meehan Company should
A)sell product Z at the split-off point because its incremental costs will exceed incremental revenues by $5,000 than if processed further.
B)further process product Z because its incremental revenues will exceed incremental costs by $1,000 with this option.
C)sell product Z at the split-off point because its incremental costs will exceed incremental revenues by $1,000 than if processed further.

Question

Quizplus · Accepted Answer

The incremental revenue from further processing Product Z is $14,000 - $6,000 = $8,000. The incremental cost of further processing Product Z is $9,000. Therefore, the incremental cost is greater than the incremental revenue, resulting in a loss of $1,000. Thus, it is economically more feasible to sell Product Z at the split-off point for $6,000, which will result in a profit of $2,000 ($6,000 - $4,000).

Meehan Gifts Manufactures a Number of Products from the Same