Payne Company Makes Two Products, M and N, in a Joint

question 151

Multiple Choice

Payne Company makes two products, M and N, in a joint process. At the split-off point, 40,000 units of M and 50,000 units of N are available each month. Monthly joint production costs are $270,000.
Product M can be sold at the split-off point for $4.20 per unit. Product N can either be sold at the split-off point for $3.20 per unit or it can be processed further and sold for $6.30 per unit. If N is processed further, additional processing costs of $2.50 per unit will be incurred.
-What would the selling price per unit of product N need to be after further processing in order for Payne Company to be economically indifferent between selling N at the split-off point or processing N further?

• A)$8.70
• B)$6.70
• C)$7.20
• D)$5.70

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Definitions:

Cash Sales

Cash sales refer to transactions where payment is made in full using cash or cash equivalents at the time of purchase.

Cash Discount Amount

A reduction in the price of an item or service that is offered by the seller as an incentive for early payment by the buyer.

Cash Discount

A discount given for a cash purchase.

Cost Of Goods Sold

The direct costs attributed to the production of goods sold by a company, including materials and labor.