Question

A company manufactures three​ products, A,​ B, and C from a single raw material input. Product C can be sold at the split off point for total revenues of $53,000 or it can be processed further at a total cost of $15,000 and then sold for $71,000. Product​ C:_______. 1. should be sold at the split-off point, rather than processed further.
2. would increase the company's overall net operating income by $18,000 if processed further and then sold.
3. would increase the company's overall net operating income by $68,000 if processed further and then sold.
4. would increase the company's overall net operating income by $2,000 if processed further and then sold.

Answer 1

Answer:

As the further process makes an increase in the revenue of the product the company should continue the processing to achieve an additional 3,000 revenue from product C regardless of the cost associate at splitoff point.

It will increase operating income by 3,000

Explanation:

With the given information we can derive the following using a differential analysis:

Differential revenue:

71,000 - 53,000 = 18,000

Differential cost:   15,000 (cost of further process)

Differential gain:    3,000