Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow:
Direct materials ……………$95,000
Direct labor ……………….. 43,000
Overhead …………………. 85,000
The revenues from each product are as follows: Alpha, $100,000; Beta, $93,000; Gamma, $30,000; and Delta, $40,000. Management is considering processing Delta beyond the split off point, which would increase the sales value of Delta to $75,000. However, to process Delta further means that the company must rent some special equipment that costs $15,400 per quarter. Additional materials and labor also needed will cost $8,500 per quarter.
Required:
1. What is the operating profit earned by the four products for one quarter?
2. Should the division process Delta further or sell it at split off? What is the effect of the decision on quarterly operating profit?