Each day, Adama Corporation processes 1 ton of a secret raw material into two resulting products, AB1 and XY1. When it processes 1 ton of the raw material, the company incurs joint processing costs of $60,000. It allocates $25,000 of these costs to AB1 and $35,000 of these costs to XY1. The resulting AB1 can be sold for $100,000.

Alternatively, it can be processed further to make AB2 at an additional processing cost of $45,000, and sold for $150,000. Each day’s batch of XY1 can be sold for $95,000.

Alternatively, it can be processed further to create XY2, at an additional processing cost of $50,000, and sold for $130,000. Discuss what products Adama Corporation should make.

AppendixLO1