ACCA PM · Chapter 8 · Question 9 of 10
A joint product can be sold at the split-off point for $6.00 per kg. Alternatively it can be processed further at an incremental cost of $2.50 per kg and sold for $9.20 per kg. Joint costs are allocated at $3.00 per kg. Output is 10,000 kg. What is the effect of processing further?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit increases by $7,000
Explanation
Incremental revenue = $9.20 - $6.00 = $3.20 per kg; incremental cost = $2.50 per kg. Gain = $0.70 x 10,000 = $7,000, so the product should be processed further. Joint costs are incurred whatever the decision and are irrelevant.
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