A company manufactures three products using the same production process. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows:

Prepare an incremental analysis for the decision whether to sell or process materials further.

Product

Number of Units Produced

Selling Price

at Split-Off

Selling Price after Processing

Additional Processing Costs

1. A3,000 $10.00 $15.00
2. B6,000 11.60 16.20
3. C2,000 19.40 21.60

Instructions

$14,000 16,000 9,000

a.Determine which information is relevant to the decision on whether to process the products further. Explain why this information is relevant.

b.Which product(s) should the company process further and which should it sell at the split-off point?