The Freed Corporation produces three products, X, Y, Z, from a single raw material input. Product Y can be sold at the split-off point for total annual revenues of $50,000, or it can be processed further at a total annual cost of $16,000 and then sold for $68,000. Which of the following statements is true concerning Product Y?
A) Product Y should be sold at the split-off point rather than processed further.
B) The annual financial advantage from processing Product Y further is $18,000.
C) The annual financial advantage from processing Product Y further is $68,000.
D) The annual financial advantage from processing Product Y further is $2,000.

Question

Quizplus · Accepted Answer

The additional revenue from processing further is $68,000 - $50,000 = $18,000. The additional cost is $16,000. Therefore, the financial advantage is $18,000 - $16,000 = $2,000.

The Freed Corporation Produces Three Products, X, Y, Z, from a Single