Question: SELL OR PROCESS FURTHER, BASIC ANALYSIS Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a

SELL OR PROCESS FURTHER, BASIC ANALYSIS

Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow:

Direct materials $95,000

Direct labour 43,000

Overhead 85,000

The revenues from each product are as follows: Alpha, $100,000; Beta, $93,000; Gamma, $30,000; and Delta, $40,000.

Management is considering processing Delta beyond the split-off point, Which would increase the sales value of Delta to $75,000. However, to process Delta further means that the company must rent some special equipment that costs $15,400 per quarter. Additional materials and labour also needed, will cost $8,500 per quarter.

Required:

1. What is the operating profit earned by the four products for one quarter?

2. Should the division process Delta further or sell it at split-off? What is the effect of the decision on quarterly operating profit?

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