Exercise 14-32

Dear (presidents name):

We recommend against processing banolide into kitrocide. The incremental cost of further processing, $8,100, exceeds the incremental revenue, $7,500. This $7,500 incremental revenue is the difference between the sales value of the kitrocide, $10,000, and the sales value of the banolide, $2,500. We would also like to point out that the cost of the joint process, $19,000, and the allocation of that cost to the joint products is irrelevant to the decision.

Sincerely,

I.M. Student Partner, Student Consulting Associates