Products A, B, and C are produced from a single raw material input.
The raw material and other production costs up to the split-off point are $90,000, from which - Product A, 10,000 units - Product B 15,000 units - Product C 10,000 units, can be produced each period.
Part I At split-off point, selling prices are as follows: - Product A $2 per unit - Product B $3 per unit - Product C $5 per unit.
Further processing costs and unit selling prices are :
- Product A - currently there is no market beyond split-off
- Product B $22,500 $5.00 per unit - Product C $25,000 $7.50 per unit.
Required: As management accountant of this company please recommend:
Which products should be sold at split-off and which should be processed further.
Use an incremental approach, and show calculations and explain your reasoning Part II As seen in Part I, currently, there is no market for Product A beyond split-off point, however , if further processing on Product A, costing $12,500, is undertaken, Products A and C can be combined into a package of two related items called "AC2 Bundle " and sold as a novelty.
What is the minimum price at which the company should sell the AC2 package that would be more profitable for the company as a whole?
Show calculations and explain.