Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $8.55 per pound to produce. What is the differential cost of producing Product D? A. $5.25 per pound B. $17.00 per pound C. $8.55 per pound D. $6.50 per pound
Question
Carmen Co. can further process Product J to produce Product D. Product J is currently selling for 15.75 per pound to produce. Product D would sell for 8.55 per pound to produce. What is the differential cost of producing Product D? A. 17.00 per pound C. 6.50 per pound
Solution
The differential cost of producing Product D is the additional cost required to produce Product D from Product J.
Here's how to calculate it:
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First, determine the current cost of producing Product J, which is $15.75 per pound.
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Then, determine the additional cost to produce Product D from Product J, which is $8.55 per pound.
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Add these two costs together to find the total cost of producing Product D.
So, 8.55 (additional cost to produce Product D) = $24.30 per pound (total cost to produce Product D).
The differential cost is then the difference between the total cost of producing Product D and the cost of producing Product J.
So, 15.75 (cost to produce Product J) = $8.55 per pound.
Therefore, the differential cost of producing Product D is 8.55 per pound.
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