Question
A joint production process at Sunnybrook Farms results in two products, strawberry syrup and strawberry jam. Strawberry syrup can be further processed into strawberry juice,
A joint production process at Sunnybrook Farms results in two products, strawberry syrup and strawberry jam. Strawberry syrup can be further processed into strawberry juice, and strawberry jam can be further processed into specialty jams. The following cost and activity data relate to these two products:
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| Strawberry syrup | Strawberry jam |
| Joint costs allocated | $8,000 | $14,000 |
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| Number of units produced from joint process | 2,000 | 2,000 |
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| Selling price at split-off point | $2.50 | $1.75 |
| Selling price after processing further | $5.00 | $2.00 |
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| Cost of processing further | $3,000 | $2,000 |
If strawberry syrup is processed further into the specialty strawberry juice, what would be the overall effect on operating income assuming the same number of units will be produced?
| $2,000 net increase in operating income
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| $2,000 net decrease in operating income
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| $5,000 net decrease in operating income | ||
| $5,000 net increase in operating income |
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