Products A,B,and C Are Produced from a Single Raw Material

question 26

Multiple Choice

Products A,B,and C are produced from a single raw material input.The raw material costs are $90,000,from which 5,000 units of A,10,000 units of B,and 15,000 units of C can be produced each period.Product A can be sold at the split-off point for $2 per unit,or it can be processed further at a cost of $12,500 and then sold for $5 per unit.What is the correct course of action regarding Product A?

• A) It should be sold at the split-off point, since further processing would result in a loss of $0.50 per unit.
• B) It should be processed further, since this will increase profits by $2,500 each period.
• C) It should be sold at the split-off point, since further processing will result in a loss of $2,500 each period.
• D) It should be processed further, since this will increase profits by $12,500 each period.

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Definitions:

Process Cost Accounting

Process cost accounting is a method of accounting that accumulates costs for each process within the production cycle, suitable for industries producing homogeneous products.