Joint costs
The Freshfield Company manufactures a number of products from the same raw material. Joint processing costs total $10,000 per month. Product A could be sold at the cut-off point for $18,000 per month or it can be further processed at a cost of $9,000 per month and then sold for $31,000. Freshfields Company should:
- further process product A because its incremental revenues will exceed incremental costs by $4,000
- further process product A because its incremental revenues will exceed incremental costs by $14,000
- sell product A at the split-off point because its incremental costs will exceed incremental revenues by $1,000
- sell product A at the split-off point because its incremental costs will exceed incremental revenues by $4,000
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Solution Summary
The solution explains the correct alternative in relation to further processing and joint costs.