Paulsen Corporation makes two products, W and P, in a joint process.At the split-off point, 50, 000 units of W and 60, 000 units of P are available each month.Monthly joint production costs are $290, 000.Product W can be sold at the split-off point for $5.60 per unit.Product P either can be sold at the split-off point for $4.75 per unit or it can be further processed and sold for $7.20 per unit.If P is processed further, additional processing costs of $3.10 per unit will be incurred. What would the selling price per unit of Product P need to be after processing in order for Paulsen Corporation to be economically indifferent between selling P at the split-off point or processing P further?
A)$7.85
B)$8.58
C)$9.49
D)$11.68

Question

Quizplus · Accepted Answer

Profit from further processing
The company would be indifferent between selling Product P at the split-off point or processing Product P further when the sales value at the split-off point equals the incremental profit that the company could earn by processing further.
Sales value at split-off point = Final sales value after further processing - Cost of further processing
$4.75 = Final sales value after further processing - $3.10
Final sales value after further processing = $4.75 + $3.10 = $7.85

Paulsen Corporation Makes Two Products, W and P, in a Joint