Lemon Manufacturing Company Produces Three Products Using a Joint Process

question 121

Multiple Choice

Lemon Manufacturing Company produces three products using a joint process that accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split- off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available: $\begin{array}{llll}&&\text { Separable }\\&&\text { Processing }\\\text { Product } & \begin{array}{l}\text { Sales Value at } \\\text { Split-off }\end{array} & \begin{array}{l}\text { Costs after } \\\text { Split-off }\end{array} & \begin{array}{l}\text { Sales Value at } \\\text { Completion }\end{array}\\\mathrm{A} & \$ 12 & \$ 9 & \$ 21 \\\mathrm{~B} & 10 & 4 & 17 \\\mathrm{C} & 15 & 6 & 19\end{array}$ Product B:

• A) can be processed further or sold at split- off; it makes no difference.
• B) should be processed further to increase profits by $3 per unit
• C) should be processed further to increase profits by $70,000
• D) should be sold at split- off to maximize profits

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Definitions:

Less Risky

Less risky describes an investment or action that has a lower likelihood of resulting in loss or lower variability in its returns compared to other options.

Treasury Stock

Shares that were issued and subsequently reacquired by the company, reducing the amount of outstanding stock on the open market.

Undervalued

A situation where a securities price is considered to be below its intrinsic value, making it an appealing investment opportunity.

Net Income

The amount of money a company earns after subtracting all expenses, taxes, and losses, indicating the company's profitability over a time period.