Walters Company is considering producing 120,000 pounds of paperclips and 140,000 pounds of staples each month from their current production of grade A and grade B wiring. The following are the expenditures to date:
Jan. 1 $100,000 Bulk steel purchase
Jan. 2 - Feb. 15 $150,000 Cost to melt steel
Feb. 16 - Mar. 31 $200,000 Cost to mold steel into wires, polish wires and
wrap around large bolts
April 1 $3.00/pound market price for grade A wire
$4.00/pound market price for grade B wire
Grade A wire requires $450,000 of monthly variable costs to process into staples, which can be sold in the market on 5/1/XX for $7.00 per pound. Grade B wire requires $600,000 of monthly variable costs to process into paperclips, which can be sold in the market on 5/1/XX for $8.00 per pound.
Required:
1) Should Walters Company sell their products in the marketplace on April 1st or on May 1st? What recommendation would you make to Walters Company?
2) What is the incremental monthly revenue (loss) for staples and paperclips?
3) How should the $450,000 of joint costs be accounted for in the further processing decision?