Gomez Industries produces three products from a single operation. Product A sells for $4 per unit, Product B for $6 per unit, and product C for $10 per unit. When B is processed further, there are additional unit costs of $3, and its new selling price is $10 per unit. Each product is allocated $2 of joint costs from the initial production operation. Should Product B be processed further, or should it be sold at the end of the initial operation? Solution Product B be processed further than Incremental cost per unit = $ 3 Incremental Revenue per unit = 10 - 6 = $ 4 Net Incremental Income per unit = Incremental Revenue per unit - Incremental cost per unit Net Incremental Income per unit = 4-3 Net Incremental Income per unit = $ 1 per unit Decision : Product B should be processed further & sold as its Income would increase $ 1 per unit .

1. Gomez Industries produces three products from a single operation. Product A sells for $4 per
unit, Product B for $6 per unit, and product C for $10 per unit. When B is processed further,
there are additional unit costs of $3, and its new selling price is $10 per unit. Each product is
allocated $2 of joint costs from the initial production operation. Should Product B be processed
further, or should it be sold at the end of the initial operation?
Solution
Product B be processed further
than
Incremental cost per unit = $ 3
Incremental Revenue per unit = 10 - 6 = $ 4
Net Incremental Income per unit = Incremental Revenue per unit - Incremental cost per unit
Net Incremental Income per unit = 4-3
Net Incremental Income per unit = $ 1 per unit
Decision : Product B should be processed further & sold as its Income would increase $ 1 per
unit