Lido manufactures A and B from a joint process (cost = $80,000). Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $25 per pound. If Lido decides to process A beyond the split-off point, operating income will:
A) increase by $10,000.
B) increase by $20,000.
C) decrease by $10,000.
D) decrease by $20,000.
E) increase by $5,000.

Question

Quizplus · Accepted Answer

The additional revenue from processing A further is $25 - $20 = $5 per pound. For 5,000 pounds, this results in an additional $25,000 in revenue. Subtracting the additional processing cost of $20,000, the operating income increases by $5,000.

Lido Manufactures a and B from a Joint Process (Cost