Farrugia Corporation produces two intermediate products, A and B, from a common input. Intermediate product A can be further processed into Product X. Intermediate product B can be further processed into Product Y. The common input is purchased in batches that cost $54 each and the cost of processing a batch to produce intermediate products A and B is $22. Intermediate product A can be sold as is for $36 or processed further for $22 to make Product X that is sold for $49. Intermediate product B can be sold as is for $79 or processed further for $44 to make Product Y that is sold for $98.

Required:

a. Assuming that no other costs are involved in processing the common input or in selling products, what is the profit (loss) from processing one batch of the common input into the products X and Y?

b. What is the Financial advantage (disadvantage) from further processing? Should each of the intermediate products, A and B, be sold as is or processed further?

Q2 Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below:

Sales	$	740,000
Variable expenses	$	341,000
Fixed manufacturing expenses	$	257,000
Fixed selling and administrative expenses	$	205,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $199,500 of the fixed manufacturing expenses and $114,500 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.

Required:

a. According to the company's accounting system, what is the net operating income earned by product D14E? (Net losses should be indicated by a minus sign.)

b. What would be the profit/loss of dropping product D14E? Should the product be dropped?