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Good Earth Products produces orange juice and candied orange peels.
Good Earth Products produces orange juice and candied orange peels. A 1,000-pound batch of oranges, costing $520, is transformed using labor of $40 into 110 pounds of orange peels and 290 pints of juice. The company has determined that the sales value of 110 pounds of peels at the split-off point is $350, and the value of a pint of juice (not pasteurized or bottled) is $0.4. Beyond the split-off point, the cost of sugar-coating and packaging the 110 pounds of peels is $50. The cost of pasteurizing and packaging the 290 pints of juice is $250. A 110-pound box of candied peels is sold to commercial baking companies for $620. Each pint of juice is sold for $1.71.
Allocate joint costs using the relative sales values at the split-off point, and calculate the profit per 110-pound box of sugar-coated peels and the profit per pint of juice.
What is the incremental benefit (cost) to the company of sugar-coating the peels rather than selling them in their condition at the split-off point?
