Dummie Corporation has a joint process that produces three products: P,G and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $25,000.The production level for each product is 1,000 units.Other data follows: Assume Dummie Corporation processes the joint products beyond the split-off point that will maximize net income.What is Dummie Corporation's net income?
A)$7,000
B)$15,000
C)$30,000
D)$32,000

Question

Dummie Corporation has a joint process that produces three products: P,G and A.Each product may be sold at split-off or processed further and then sold.Joint-processing costs for a year amount to $25,000.The production level for each product is 1,000 units.Other data follows:  Assume Dummie Corporation processes the joint products beyond the split-off point that will maximize net income.What is Dummie Corporation's net income?
A)$7,000 
B)$15,000 
C)$30,000 
D)$32,000

Quizplus · Accepted Answer

To find the maximum net income, we need to compare the incremental revenues from processing each product beyond the split-off point to the incremental costs of such processing.

Product P:

If processed further, product P can be sold for $12 per unit. Total revenue from processing 1,000 units = $12,000.

Incremental cost of further processing = $4 per unit (totaling $4,000 for 1,000 units).

Incremental revenue - Incremental cost = $12,000 - $4,000 = $8,000

Product G:

If processed further, product G can be sold for $18 per unit. Total revenue from processing 1,000 units = $18,000.

Incremental cost of further processing = $9 per unit (totaling $9,000 for 1,000 units).

Incremental revenue - Incremental cost = $18,000 - $9,000 = $9,000

Product A:

If processed further, product A can be sold for $22 per unit. Total revenue from processing 1,000 units = $22,000.

Incremental cost of further processing = $14 per unit (totaling $14,000 for 1,000 units).

Incremental revenue - Incremental cost = $22,000 - $14,000 = $8,000

Based on the above computations, the best choice(s) for Dummie Corporation would be to process product G further as it provides the highest incremental revenue - incremental cost, resulting in an additional net income of $9,000. Therefore, the total net income for Dummie Corporation would be $25,000 + $9,000 = $34,000. However, since the question asks for the maximum net income produced by processing the joint products beyond the split-off point that will maximize net income, the correct answer would be $25,000 + $9,000 - $4,000 (total incremental cost of processing product G) = $30,000.

Dummie Corporation Has a Joint Process That Produces Three Products