Problem: The Mussina Chemical Company produced three joint products at a joint cost of $117,000. These products were processed further and sold as follows.
Chemical product Sales Additional processing Costs
A $230,000 $190,000
B 330,000 300,000
C 175,000 100,000
The company has had an opportunity to sell at split off directlly to other processors. If that alternative had been selected, sales would have been A, $54,000; B, $28,000;and C, $54,000.
The company expects to operate at the same level of production and sales in the forthcoming year.
Consider all the available information, and assume that all costs incurred after split off are variable.
1. Could the company increase operating income by altering its processing decisions?
2. Which products should be processed further and which should be sold at split off?