Answer :
Answer:
It is preferable to further process Product A.
Explanation:
Product should be processed further before sale if the net incremental benefits from further processing is positive.
The net incremental benefits from further processing is increase in revenue when further processed less further costs of processing.
Increase in revenue=$58,000-$40,000
=$18,000
Further processing costs=$15,000
Net incremental benefits=$18,000-$15,000
Net incremental benefits=$3,000
Since processing further brings a net benefit of $3,000, Product A should be further processed before being sold.
Answer:
Product A should be processed further and then sold at $58,000.
Explanation:
In to determine this, the decision rule is to compare the revenue from selling A at the splitoff point with the net revenue from processing A further and chose the one that is greater as follows:
Revenue from selling A at the splitoff point = $40,000
Net revenue from processing A further = $58,000 - $15,000 = $43,000
Amount of increase in A revenue by processing it further = $43,000 - $40,000 = $3,000
Since the net revenue of $43,000 from processing A further is greater than the revenue of $40,000 from selling A at the splitoff point by $3,000, Product A should be processed further and then sold at $58,000.