Exercise 21.10 Joint Products (LO21-1, LO21-2, LO21-3, LO21-4)

Treadwell Pharmaceuticals produces two medications in a joint process: Amoxiphore and Benidrate. With each production run, Treadwell incurs $4,000 in common costs up to the split-off point. Amoxiphore can be sold for $2,700 at the split-off point or be processed further at a cost of $1,600, at which time it can be sold for $4,200. However, if Amoxiphore is sold at the split-off point, its side effects include nausea and headaches. If it is processed further, these side effects are diminished. Demand for Amoxiphore far exceeds Treadwell's production capacity. Benidrate can be sold for $2,400 at the split-off point or be processed further at a cost of $3,700, at which time it can be sold for $6,000.

a-1. Calculate the net proceeds for the two products if processed further.

a-2. Determine which product is more profitable to process beyond the split-off point.