Eunice Company produces two products from a joint process. Joint costs are $ 70,000 for one batch, which yields 1,000 liters of Germain and 4,000 liters of Hastain. Germain can be sold at the split-off point for $ 24 or be processed further, into Geraiten, at a manufacturing cost of $ 4,100 (for the 1,000 liters) and sold for $ 33 per liter. If Geraiten is sold, additional distribution costs of $ 0.80 per liter and sales commissions of 10 percent of sales will be incurred. In addition, Eunice’s legal department is concerned about potential liability issues with Geraiten— issues that do not arise with Germain.
1. Considering only gross profit, should Germain be sold at the split-off point or processed further?
2. Taking a value-chain approach (by considering distribution, marketing, and after-the-sale costs), determine whether or not Germain should be processed into Geraiten.

  • CreatedSeptember 22, 2015
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