Good Earth Products produces orange juice and candied orange peels. A 1,000-pound batch of oranges, costing $400, is transformed using labor of $40 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 $300and the value of a pint of juice (not pasteurized or bottled) is $0.30. Beyond the split-off point, the cost of sugar-coating and packaging and the 100 pounds of peels is $50. The cost of pasteurizing and packaging the 300 pints of juice is $150. A 100 pound box of candied peels is sold to commercial baking companies for $500. Each pint of juice is sold for $1.
Questions
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.
B. What is the incremental benefit (cost) to the company of sugar coating 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?