Lafoe Corporation Produces Two Intermediate Products, a and B, from a Common

question 19

Essay

Lafoe Corporation produces two intermediate products, A and B, from a common input. Intermediate product A can be further processed into end product X. Intermediate product B can be further processed into Product Y. The common input is purchased in batches that cost $40 each and the cost of processing a batch to produce intermediate products A and B is $18. Intermediate product A can be sold as is for $28 or processed further for $19 to make Product X that is sold for $50. Intermediate product B can be sold as is for $30 or processed further for $21 to make product Y that is sold for $49.
Required:
a. Assuming that no other costs are involved in processing the common input or in selling products, what is the profit (loss) from processing one batch of the common input into the products X and Y? Show your work!
b. Should each of the intermediate products, A and B, be sold as is or processed further? Explain.

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