The Freed Corporation produces three products, X, Y, Z, from a single raw material input. Product Y can be sold at the split-off point for total annual revenues of $50,000, or it can be processed further at a total annual cost of $16,000 and then sold for $68,000. Which of the following statements is true concerning Product Y? a. Product Y should be sold at the split-off point rather than processed further.
b. The annual financial advantage of processing Product Y further is $18,000.
c. The annual financial advantage of processing Product Y further is $68.000.
d. The annual financial advantage from processing Product Y further is $2.000

The correct option is D,the annual financial advantage from processing Product Y further is $2.000

Explanation:

The decision of whether or not to further to process product Y is dependent upon the benefit that is derivable from further processing which is computed using the below formula:

benefit/(cost) of further processing=sales value after processing-cost of further processing-sales value at split-off point

sales value after processing is $68,000

additional cost of further processing is $16,000

sales value at split-off point is $50,000

benefit/(cost)=$68,000-$16,000-$50,000=$2,000

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