Brittany Furniture manufactures two products, pillows and cushions, from a joint process. Pillows are allocated $7,000 of the total joint costs of $25,000. There are 2,500 pillows produced and 2,500 cushions produced each year
Pillows can be sold at the split-off point for $12 per unit, or they can be processed further into a deluxe pillow for additional processing costs of $8,000 and sold for $16 for each deluxe pillow. If the pillows are processed further and made into deluxe pillows, the effect on operating income would be
A) $30,000 net increase in operating income.
B) $2,000 net decrease in operating income.
C) $2,000 net increase in operating income.
D) $30,000 net decrease in operating income.
C
Explanation: C)
Selling Price × Units $16.00 × 2,500 = $40,000
less Additional cost 8,000
Profit 32,000
Less split-off point sales $12 × 2,500 = 30,000
Net increase $2,000
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