Port Allen Chemical Company processes raw material D into joint products E and F
ID: 2464602 • Letter: P
Question
Port Allen Chemical Company processes raw material D into joint products E and F. Raw material D costs $6 per liter. It costs $100 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F can be sold immediately for $6 per liter or processed further into Product G at an additional cost of $5 per liter. Product G can then be sold for $13 per liter.
Determine whether Product F should be sold or processed further into Product G. Calculate the net benefit (cost) of further processing.
Explanation / Answer
It should be processed further since net benifit of further processing is $2 on per unit.
Additional revenue of further processing (13-6)
7
Additional cost
-5
Additional margin on further processing
2
Additional revenue of further processing (13-6)
7
Additional cost
-5
Additional margin on further processing
2