The Wyeth Corporation produces three products, A, B, and C, from a single raw material input. Product A can be sold at the splitoff point for $40,000, or it can be processed further at a total cost of $15,000 and then sold for $58,000. Joint costs total $60,000 annually. Product A should be:
A) discontinued because revenues after further processing are less than total joint costs.
B) sold at the split-off point.
C) processed further and then sold.
D) processed further only if its share of the total joint costs is less than the incremental revenues from further processing.

Question

Quizplus · Accepted Answer

Processing Product A further and selling it at $58,000 will generate incremental revenue of $3,000 ($58,000 - $55,000 joint cost allocated to Product A). The revenue from selling at the split-off point is only $40,000, which is less than the joint cost allocated to Product A. Therefore, processing Product A further and selling it at $58,000 is the best option.

The Wyeth Corporation Produces Three Products, A, B, and C