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

question 86

Multiple Choice

Products A, B, and C are produced from a single raw material input. The raw material costs $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. Product A should be:

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

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Definitions:

Continuous Flow

A production process that operates without any interruptions, producing goods at a constant rate.

Weighted-Average Method

This is a cost accounting method that calculates inventory cost by taking the weighted average of all units available for sale during the accounting period.

Work in Process Inventory

The value of goods in various stages of production but not yet completed; includes materials, labor, and overhead costs incurred so far.

Process Costing

An accounting methodology used for homogeneous products, allocating manufacturing costs to units of output on an average basis.