Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: Direct Materials $500,000 Direct Labor 36,000 Overhead 72,000 The revenues from each product are as follows: Alpha, $100,000; Beta, $93,000; Gamma, $30,000; and Delta, $40,000. Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to $75,000. However, to process Delta further means that the company must rent some special equipment that costs $15,400 per quarter. Additional materials and labor also needed will cost $8,500 per quarter. Required: What is the effect of the process-further decision on the quarterly operating profit?
Problem: Sell or Process Further, Basic Analysis
Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow:
Direct Materials $500,000
Direct Labor 36,000
The revenues from each product are as follows: Alpha, $100,000; Beta, $93,000; Gamma, $30,000; and Delta, $40,000.
Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to $75,000. However, to process Delta further means that the company must rent some special equipment that costs $15,400 per quarter. Additional materials and labor also needed will cost $8,500 per quarter.
Required:
What is the effect of the process-further decision on the quarterly operating profit?
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