Two products LB and NH emerge from a joint process Product L

Two products, LB and NH, emerge from a joint process. Product LB has been allocated $24,300 of the total joint costs of $45,000. A total of 3,100 units of product LB are produced from the joint process. Product LB can be sold at the split-off point for $15 per unit, or it can be processed further for an additional total cost of $11,100 and then sold for $17 per unit. If product LB is processed further and sold, what would be the effect on the overall profit of the company compared to if LB is not processed further and is sold at the split-off point (i.e., how much will profits increase or decrease by)? 4.

Solution

Given cost of LB = 24,300

Sales at split-off point = 3100 x 15 =46,500

Profit = sales-cost = 22,200

If LB is processed further....

Cost = 24300+11100 = 35400

Sales will be 3100 x 17 = 52700

Profit = Sales - Cost = 17300

Profit would decrease by 4900(22200-17300)