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Hurricane Corporation produces three products at segregation point, Poh, Taeh, and Toh. These products could be processed further then later sold at higher sales
Hurricane Corporation produces three products at segregation point, Poh, Taeh, and Toh. These products could be processed further then later sold at higher sales value. The total joint cost in manufacturing these three products was P3 million. The data below were made available by the accounting and production personnel: Production and sales Unit sales price at split-off point Unit sales price after further processing Poh 10,000 units P 80 Taeh 40,000 units P 100 Toh 50,000 units P 200 Unit variable costs of subsequent processing 90 8 120 18 230 27 If product Poh is processed further, an equipment shall be rented at a cost of P12,000. To process further product Taeh an outside contractor will be engaged for an amount of P90,000 because the company has no available space and manpower for its subsequent processing. Product Toh could be subsequently processed by using idle machine and manpower time within the company. The total set-up cost of subsequently processing product Toh is P120,000. Required: 1. Which product should be processed further to maximize profit? 2. To maximize profit, what is the minimum sales price for product Kah that should be set after it is processed further?
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