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Question
A company processes chemicals through a common production process. This process costs $200,000 each year. The four chemicals can be sold when they emerge from this process at the "split-off point," or processed further and then sold. Data about the four products for the coming period are:
| Unit Sales | Unit Sales | |||
| Price per | Price per | |||
| Gallon at Split-Off | Gallon after Further | Additional Processing | ||
| Product | Volume | Point | Processing | Costs |
| A | 25,000 g. | $35.00 | $54.00 | $500,000 |
| B | 12,000 g. | 00 | 36.00 | 124,000 |
| C | 8,000 g. | 36.00 | 54.00 | 120,000 |
| D | 2,000 g. | 12.00 | 21.00 | 25,000 |
a. Calculate the incremental profit or loss that would be generated by processing these chemicals further.
b. Which chemicals should be sold as is and which should be processed further and why?
Answer
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