Question

Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $8.55 per pound to produce. What is the differential revenue of producing Product D?
a. $18.00 per pound
b. $22.25 per pound
c. $6.25 per pound
d. $6.75 per pound

Answer 1

Answer:

a. Differential revenue = $18 per pound

Explanation:

Differential revenue refers to additional revenue per unit.

Current revenue per unit = $20 - $15.75 = $4.25 per unit on Product J

When it will be further processed to form Product D

Net proceeds to be realized from each unit of product D = $38

Net revenue = $38 - $24.30 = $13.7

Additional or differential revenue = $38 - $20 = $18 per unit

As for $20 selling price the revenue was recognized earlier now additional revenue = $38 - $20 = $18 per pound

Note: Revenue is the proceeds from sale and not the net profit.

Differential revenue = $18 per pound