Problem - Joint Costs and Additional Processing
Good Earth Products produces orange juice and candied peels. A 1,000 pound batch of oranges, costing $500, is transformed using labor of $50 into 100 pounds of orange peels and 300 pints of juice. The company has determined that the sales value of 100 pounds of peels at the split-off point is $350, and the value of a pint of juice (not pasteurized or bottled) is $0.40. Beyond the split-off point, the cost of aging the 300 pints of juice is $250. A 100 pound box of candied peels is sold to commercial banking companies for $600 each. Each pint of juice is sold for $1.75.
A. Allocate joint costs using the relative sales values at the split-off point, and calculate the profit per 100 pound box of sugar-coated peels and the profit per pint of juice. Round to the nearest dollar.
B. What is the incremental benefit (cost) to the company of sugar-coateing the peels rather than selling them in their condition at the split-off point?
C. What is the incremental benefit (cost) to the company of pasteurizing and packaging a pint of juice rather than selling the juice at the split-off point?