Walters Company produces 15,000 pounds of Product A and 30,000 pounds of Product B each week by incurring a joint cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. Data regarding these two products are as follows:
Product A Product B
Selling price per pound without further processing $12.00 $9.00
Selling price per pound with further processing $15.00 $11.00
Total separate weekly variable cost of further processing $50,000 $45,000
To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?
This is a strange question because it is indirect. They don't ...
This is a strange question because it is indirect. They don't ask the actual optimal decision, just how much processing costs should be incurred. Attached is the schedule to analyze the optimal decision and therefore the processing costs that will "pay off."