Sell at split-off or process further bozo inc. manufactures two products from a joint production process. the joint process costs $110,000 and yields 6,000 pounds of lte compound and 14,000 pounds of hs compound. lte can be sold at split-off for $55 per pound. hs can be sold at split-off for $13 per pound. a buyer of hs asked bozo to process hs further into cs compound. if hs were processed further, it would cost $40,800 to turn 14,000 pounds of hs into 4,000 pounds of cs. the cs would sell for $59 per pound.
1. what is the contribution to income from selling the 14,000 pounds of hs at split-off? $
2. conceptual connection: what is the contribution to income from processing the 14,000 pounds of hs into 4,000 pounds of cs? $ should bozo continue to sell the hs at split-off or process it further into cs?
1. The contribution margin is shown below:
= Number of pounds × split-off per pound
= 14,000 pounds × $9
2. The contribution margin in another case is shown below:
= Sales - variable cost
Sales = Number of pounds × selling price per pound
= 4,000 pounds × $45
And, the processed cost is $34,000 which is a variable cost
Now put these values to the above formula
So, the value would equal to
= $180,000 - $34,000
Additional contribution = $146,000 - $126,000 = $20,000