Lido Manufactures a and B from a Joint Process (Cost

question 8

Multiple Choice

Lido manufactures A and B from a joint process (cost = $80,000) . Ten thousand pounds of B can be sold at split-off for $15 per pound or processed further at an additional cost of $20,000 and later sold for $16. If Lido decides to process B beyond the split-off point, operating income will:

• A) increase by $10,000.
• B) increase by $20,000.
• C) decrease by $10,000.
• D) decrease by $20,000.
• E) decrease by $58,000.

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Definitions:

Variable Costs

Expenses that change in proportion to the production output or sales amount.

Target Costing

A pricing strategy in which the selling price of a product is set first, and then the target cost is determined by subtracting a desired profit margin from the selling price.

Return on Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated as net income divided by the cost of the investment.

Selling Price

The price at which a product or service is offered to customers, often determined by costs, market demand, and competition.