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MaMa Mia Company grows organic vegetables which it manufactures into three basic types of pasta sauces. Joint processing costs up to the split off point
MaMa Mia Company grows organic vegetables which it manufactures into three basic types of pasta sauces. Joint processing costs up to the split off point are $150,000. Each of these basic sauces can be processed further if desired. For example, meat could be added to the Marinara, Queso cheese to the spicy salsa, and sliced black olives to the red pepper pesto. The selling prices and output at the split off point are as follows: Product Selling price output Marinara sauce $3.50 per bottle 10,000 bottles Spicy salsa $5.25 per bottle 7,000 bottles Red pepper pesto $7.50 per jar 5,000 jars If the products are processed further, the following information is relevant: Product Additional Processing costs Selling price Marinara sauce $3,500 $4.25 per bottle Spicy salsa $10,000 $7.25 per bottle Red pepper Pesto to $14,500 $10.00 per jar a) Which sauce(s) should be processed further? 6 points b) What is the financial advantage of doing so? 4 points
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