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 labor .............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 labor 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?