CHAPTER-15

Alternatively, PI can be processed to make a finished product, FP1. Costs of further processing consist

of variable costs of Rs.6 per kilogram and fixed costs of Rs. 120,000 per year. Of these fixed costs,

Rs.96,000 would be directly attributable to the further processing operations, and the remaining

Rs.24,000would be an apportionment of general fixed overhead costs. The further processed product

(FP1) would have a selling price of Rs28 per kilogram.

It is estimated that 15,000 kilograms of JP1 will be produced each year. There are no losses in any

process.

Required:

Should JP1 be sold as soon as it is produced from the common process, or should it be further processed

into Product FP1?