During the pandemic, Mike decided to start a distillery. His product line consists of whiskey, vodka, and rum. Costs to run the distillery are $65,000 per year and are allocated to the proucts based on their respective volumes:

Whiskey (6,000 litres) is allocated $23,000

Vodka (8,000 litres) is allocated $31,000

Rum (3,000 litres) is allocated $11,000

The products can be sold 'as-is' (that is, at the split-off point) for the following:

Whiskey for $35,000

Vodka for $45,000

Rum for $15,000

Alternately, they can be further processed. For an additional $11,000 in storage costs, Mike can age the whiskey which will increase its sales value from $37,000 to $50,000. Vodka can be further processed into vodka coolers for an additional $25,000, which increases its sales value to $65,000. Finally, for $6,000 in coconuts the rum can be further processed into coconut rum which will increase its sales

value to $28,000.

Required:

Which products should be sold at the split-off point, and which ones should be further processed? Be sure to show all your workings.