Question

The Freed Company produces three products, X, Y, Z, from a single raw material input. Product Y can be sold at the splitoff point for total revenues of $50,000, or it can be processed further at a total cost of $16,000 and then sold for $68,000. Product Y: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

Product Y: would increase the company's overall net operating income by $2,000 if processed further and then sold.

Option 4 is correct

Solution:

Particulars                                                                Amount

Incremental income ( $68,000-$50,000)            $18,000

Less: Incremental cost                                            $16,000

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Incremental Income                                                 $2,000