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Sheridan Company produces face cream. Each bottle of face cream costs $11 to produce and can...

Sheridan Company produces face cream. Each bottle of face cream costs $11 to produce and can be sold for $15. The bottles can be sold as is, or processed further into sunscreen with an additional cost of $16 each. Sheridan Company could sell the sunscreen bottles for $25 each.

a. Face cream must not be processed further because it decreases profit by $2 each.

b. Face cream must be processed further because its profit is $9 each.

c. Face cream must not be processed further because costs increase more than revenue.

d. Face cream must be processed further because it increases profit by $4 each.

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Answer #1

OPTION: Face cream must not be processed further because it decreases profit by $2 each.

EXPLANATION:

profit at split off point = $15 - $11

= $4

profit (loss) after further processing = additional sales - additional costs

= ($25 - $15) - $16

= -$6

therefore, net profit = $4 - $6 = $2

Face cream must not be processed further because it decreases profit by $2 each.​​​​​​​

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