SELL AT SPLIT-OFF OR PROCESS FURTHER Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 20,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $8 per pound. A buyer of HS asked Bozo Inc. to process HS further into CS compound. If HS were processed further, it would cost $34,000 to turn 20,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $45 per pound.

Required:

. What is the contribution to income from selling the 20,000 pounds of HS at split-off?

. What is the contribution to income from processing the 20,000 pounds of HS into 4,000 pounds of CS? Should Bozo Inc. continue to sell the HS at split-off or process it further into CS?

Exercise