Products A,B,and C are produced from a single raw material input.The raw material costs are $90,000,from which 5,000 units of A,10,000 units of B,and 15,000 units of C can be produced each period.Product A can be sold at the split-off point for $2 per unit,or it can be processed further at a cost of $12,500 and then sold for $5 per unit.What is the correct course of action regarding Product A?
A) It should be sold at the split-off point, since further processing would result in a loss of $0.50 per unit.
B) It should be processed further, since this will increase profits by $2,500 each period.
C) It should be sold at the split-off point, since further processing will result in a loss of $2,500 each period.
D) It should be processed further, since this will increase profits by $12,500 each period.

Question

Quizplus · Accepted Answer

Selling at the split-off point would yield $10,000 (5,000 units * $2/unit). Processing further costs $12,500, making total costs $22,500, but selling after processing yields $25,000 (5,000 units * $5/unit), which is a $2,500 increase in profits compared to selling at the split-off point.

Products A,B,and C Are Produced from a Single Raw Material