Payne Company makes two products, M and N, in a joint process. At the split-off point, 40,000 units of M and 50,000 units of N are available each month. Monthly joint production costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be sold at the split-off point for $3.20 per unit or it can be processed further and sold for $6.30 per unit. If N is processed further, additional processing costs of $2.50 per unit will be incurred.
-If N is processed further and then sold,rather than being sold at the split-off point,the change in monthly operating income would be a:
A)$30,000 increase
B)$315,000 increase
C)$155,000 increase
D)$125,000 decrease

Question

Payne Company makes two products, M and N, in a joint process. At the split-off point, 40,000 units of M and 50,000 units of N are available each month. Monthly joint production costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be sold at the split-off point for $3.20 per unit or it can be processed further and sold for $6.30 per unit. If N is processed further, additional processing costs of $2.50 per unit will be incurred. 
-If N is processed further and then sold,rather than being sold at the split-off point,the change in monthly operating income would be a:
A)$30,000 increase
B)$315,000 increase
C)$155,000 increase
D)$125,000 decrease

Quizplus · Accepted Answer

If N is processed further and then sold, rather than being sold at the split-off point, the additional processing costs would be $190,000 ($315,000 - $125,000). The additional revenue from selling the further processed N would be $315,000. Therefore, the change in monthly operating income would be a $315,000 increase.

Payne Company Makes Two Products, M and N, in a Joint