Question

An unfinished desk is produced for $36.00 and sold for $65.00. A finished desk can be sold for $75.00. The additional processing cost to complete the finished desk is $5.95. What is the differential revenue if you process further

Answer 1

Answer:

Differential revenue from further processing = $4.05

Explanation:

A business should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.  

Also note that all cost incurred up to the split-off point are irrelevant to the decision to process further .i.e $36 irrelevant to the decision to process further

The differential revenue if the desk is processed further would be the difference between the additional revenue from further process and the further processing cost.

                                                                                  $

Sales price after the split-off point                         75

Sales price at the split-off point                               65

Additional sales revenue                                         10

Further processing cost                                       (5.95)

Differential revenue from further processing        4.05

Differential revenue from further processing = $4.05