Joint products
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Charlottetown Powder Company produces powder in batches. Each powder can be sold in its current condition or processed further and specialized for high priced department stores. Data concerning the various products appear below. Joint processing costs are $200,000.
Required:
(a) Determine which products should be sold at split-off and which should be processed further.
(b) Charlottetown Powder is approached by the Brudnelle Department Store chain. Brudnelle would like Charlottetown Powder to process regular powder into a special powder for its cosmetics department. At what price per pound would Charlottetown Powder be economically indifferent between selling the powder at the split-off point and processing it further for Brudnelle?
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Solution Summary
The solution explains how to determine which products should be sold at split off point and which should be processed further
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(a) Products where incremental revenue is greater than incremental cost should be processed further, else no processing should be done. We calculate the incremental revenue and incremental cost for the products. Incremental revenue = (selling price after processing - selling price at split off point) X pounds produced. The ...
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