Van Dusen Corporation produces several products from processing one ton of a mineral called Gummo. The material and processing costs for one ton of Gummo total $90,000, 30% of which is allocated to product Zeppo. One ton of Gummo yields 5,000 units of Zeppo, which can be sold at this point for $15 per unit. Alternatively, Zeppo can be further processed into a product called Chico at a total cost of $15,000 and then sold for $20 per unit. Of the cost and price information, which is irrelevant to the decision to sell Zeppo or further process it into Chico?
A) The $15 sales price of Zeppo.
B) The $20 sales price of Chico.
C) The $90,000 processing cost of Gummo.
D) The $15,000 additional processing cost of Chico.

Question

Quizplus · Accepted Answer

The $90,000 processing cost of Gummo is a sunk cost and does not affect the decision between selling Zeppo as is or further processing it into Chico.

Van Dusen Corporation Produces Several Products from Processing One Ton