# XYZ Company makes two products, W and P, in a joint process. At the split-off point, 50,000 units...

## Question:

XYZ Company makes two products, W and P, in a joint process. At the split-off point, 50,000 units of Product W and 60,000 units of Product P are available each month. Monthly joint production costs total $290,000 and are are allocated to the two products equally. Product W can either be sold at the split-off point for$5.60 per unit or it can be processed further and then sold for $8.80 per unit. If Product W is processed further, additional processing costs of$2.70 per unit will be incurred. Product P can also be sold either at the split-off point for $4.75 per unit or it can be processed further and then sold for$7.30 per unit. If Product P is processed further, additional processing costs of $3.10 per unit will be incurred. However, the further processing of Product P will result in a loss of 5,000 units (i.e., only 55,000 units of Product P will be available for sale if it is processed further). The further processing of Product W will not result in the loss of any units. Calculate what the selling price per unit of Product P needs to be at the split-off point in order for XYZ Company to be economically indifferent between selling Product P at the split-off point or processing Product P further and then selling it. Enter your answer with two places after the decimal point (i.e.,$78.90).

## Selling or Processing Materials Further:

The relevant information to take into account when faced with a selling-or-processing-materials-further decision is the incremental processing costs and the incremental sales revenue. Sunk costs like the processing cost up to the decision-making point are never relevant.