Question

A joint production process at Berry Lane Farm results in two products, blackberry syrup and blackberry jam. The following cost and activity data relate to these two products: Blackberry syrup Blackberry jam Joint costs allocated $10,000 $12,000 Number of units produced from joint process 1800 1800 Selling price at split-off point $2.90 $1.75 Selling price after processing further $5.50 $2.00 Cost of processing further $2300 $2300 Blackberry syrup can be sold as-is (at the split-off point) for $2.90 per unit, or it can be processed further into a specialty blackberry juice and then sold for $5.50 per unit. If blackberry syrup is processed further into the specialty blackberry juice, what would be the overall effect on operating income

Answer 1

Answer:

$2,680

Explanation:

The computation of the overall effect on operating income is shown below:

Sale after further processing (1,800 units × $5.50) $9,900

Less: Sale at split off point (1,800 units × $2.90)        -$5,220  

Incremental revenue                                                  $4,680

Less : Incremental cost                                                  -$2000  

Incremental income                                                   $2,680