Downers Grove 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 10,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
\text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P & \$ 12 & \$ 10 & \$ 21 \
G & 12 & 4 & 17 \
A & 10 & 6 & 19
\end{array}$
To maximize profits,Downers Grove Corporation should process ________ further.
A) Product P only
B) Product G only
C) Product A only
D) Products G and A only

Question

Downers Grove 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 10,000 units.Other data follows:
$\begin{array}{llll}
&\text { Sales Value }&\text {Separable Processing }&\text {Sales Value }\
 \text {Product }&\text {at Split-Off}&\text {Costs after Split-Off }&\text { at Completion}\
P & \$ 12 & \$ 10 & \$ 21 \
G & 12 & 4 & 17 \
A & 10 & 6 & 19
\end{array}$
To maximize profits,Downers Grove Corporation should process ________ further.
A) Product P only
B) Product G only
C) Product A only
D) Products G and A only

Quizplus · Accepted Answer

To determine which products should be processed further, we calculate the incremental profit from further processing by subtracting the separable processing costs after split-off from the increase in sales value at completion. For each product:- Product P: $ \$21 - \$12 = \$9 $ increase in sales value, with \$10 processing costs, resulting in a $-\$1$ change in profit.- Product G: $ \$17 - \$12 = \$5 $ increase in sales value, with \$4 processing costs, resulting in a \$1 change in profit.- Product A: $ \$19 - \$10 = \$9 $ increase in sales value, with \$6 processing costs, resulting in a \$3 change in profit.Thus, processing Products G and A further maximizes profits.

Downers Grove Corporation Has a Joint Process That Produces Three