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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Problem 23-51 SELL AT SPLIT-OFF OR PROCESS FURTHER
Eunice Company produces two products from a joint process. Joint costs are $70,000 for one batch, which yields 1,000 liters of germain and 4,000 liters of hastain. Germain can be sold at the split-off point for $24 or be processed further, into geraiten, at a man- ufacturing cost of $4,100 (for the 1,000 liters) and sold for $33 per liter.
If geraiten is sold, additional distribution costs of $0.80 per liter and sales commis- sions of 10 percent of sales will be incurred. In addition, Eunice’s legal department is con- cerned about potential liability issues with geraiten—issues that do not arise with germain.
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Required:
1.       Considering only gross profit, should germain be sold at the split-off point or proc- essed further?
2.       Taking a value-chain approach (by considering distribution, marketing, and after-the- sale costs), determine whether or not germain should be processed into geraiten.
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