Legacy Company currently produces three products from a joint process. The joint process has total costs of $1,200,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available: Units Immediate Sales Price Later Sales Price Unit Cost of Further ProcessingA50,000 $5 $10 $6 B75,000 $10 $15 $4 C100,000 $15 $17 $3 a. Should Product A be sold immediately or sold after processing further? How much will the decision affect profit?b. Should Product B be sold immediately or sold after processing further? How much will the decision affect profit?c. Should Product C be
sold immediately or sold after processing further? How much will the decision affect profit?
What will be an ideal response?
a. Sell now, $50,000: immediate 50,000 × $5 = $250,000; later 50,000 × ($10 - $6) = $200,000
b. Sell later, $75,000: immediate 75,000 × $10 = $750,000; later 75,000 × ($15 - $4) = $825,000
c. Sell now, $100,000: immediate 100,000 × $15 = $1,500,000; later 100,000 × ($17 - $3) = $1,400,000
If the incremental revenues from processing further outweigh the incremental costs, the product should be processed further; otherwise, it should be sold immediately. The profit effect will be the difference between incremental revenues and costs.
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