Earthworks Co. produces three products from a common raw material. The joint costs for a typical year are as follows: Direct material Direct labor Variable manufacturing overhead The annual revenues from each product are as follows: Product X Product Y Product Z Management is considering processing Product Z beyond the split-off point, which would increase the value of Product Z to $57,000. To process Product Z further, Earthworks must rent processing facilities at an annual cost of $17,500 and will incur additional labor of $5,500. What will be the effect on annual operating income if Earthworks decides to process Product 2 further? O $34,000 incremental income O$4,000 incremental income $40,000 45,000 20,000 $60,000 70,000 30,000 O $14.312.50 incremental income $23,000 incremental loss Previous O # C 1
Earthworks Co. produces three products from a common raw material. The joint costs for a typical year are as follows: Direct material Direct labor Variable manufacturing overhead The annual revenues from each product are as follows: Product X Product Y Product Z Management is considering processing Product Z beyond the split-off point, which would increase the value of Product Z to $57,000. To process Product Z further, Earthworks must rent processing facilities at an annual cost of $17,500 and will incur additional labor of $5,500. What will be the effect on annual operating income if Earthworks decides to process Product 2 further? O $34,000 incremental income O$4,000 incremental income $40,000 45,000 20,000 $60,000 70,000 30,000 O $14.312.50 incremental income $23,000 incremental loss Previous O # C 1
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Earthworks Co. produces three products from a common raw material. The joint costs for a typical year are as follows:
Direct material
Direct labor
Variable manufacturing overhead
The annual revenues from each product are as follows:
Product X
Product Y
Product Z
Management is considering processing Product Z beyond the split-off point, which would increase the value of Product Z to $57,000. To process Product Z further,
Earthworks must rent processing facilities at an annual cost of $17,500 and will incur additional labor of $5,500.
What will be the effect on annual operating income if Earthworks decides to process Product 2 further?
$34,000 incremental income
O$4,000 incremental income
$40,000
45,000
20,000
$60,000
70,000
30,000
$14.312.50 incremental income
$23,000 incremental loss
Previous
V
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