Sell at Split-Off or Process Further

Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $9 per pound. A buyer of HS asked Bozo to process HS further into CS compound. If HS were processed further, it would cost $34,000 to turn 14,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $45 per pound.

Required:

1. What is the contribution to income from selling the 14,000 pounds of HS at split-off?
$

2. Conceptual Connection: What is the contribution to income from processing the 14,000 pounds of HS into 4,000 pounds of CS?
$

Question

contestada

Respuesta :

andromache andromache · Answer 1 · 2019-10-24T12:29:38+02:00

Answer:

1. $126,000

2. $146,000

Explanation:

1. The contribution margin is shown below:

= Number of pounds × split-off per pound

= 14,000 pounds × $9

= $126,000

2. The contribution margin in another case is shown below:

= Sales - variable cost

where,

Sales = Number of pounds × selling price per pound

= 4,000 pounds × $45

= $180,000

And, the processed cost is $34,000 which is a variable cost

Now put these values to the above formula

So, the value would equal to

= $180,000 - $34,000

= $146,000

Additional contribution = $146,000 - $126,000 = $20,000