Conway Corporation manufactures two products that are considered joint products. Common costs of $350,000, allocated using the physical measures metho... Accounting MCQs | Accounting MCQs

Conway Corporation manufactures two products that are considered joint products. Common costs of $350,000, allocated using the physical measures method, yield 15,000 units of Product A and 20,000 units of Product B. Product B incurs $50,000 of direct costs and sells for $15 per unit. Conway has the option of processing Product B further. This action would increase the product’s direct costs by $35,000 and would increase the unit selling price to $17. If Conway further processes Product B, its income will

Decrease by $45,000.
Increase by $5,000.
Increase by $55,000.
Increase by $105,000.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (B) is correct. The further processing will increase revenue by $2 per unit ($17 – $15). Therefore, total increased revenues are $40,000 ($2 per unit × 20,000 units). Since this exceeds $35000 the costs of further processing by $5000 Conway’s income will increase by $5,000.