Butry Company Manufactures Veterinary Products

Multiple Choice

Butry Company manufactures veterinary products. One joint process involves refining a chemical (dactylyte) into two chemicals: dac and tyl. One batch of 5,000 L of dactylyte can be converted to 2,000 L of dac and 3,000 L of tyl at a total joint processing cost of $12,000. At the split-off point, dac can be sold for $3 per litre and tyl can be sold for $4 per litre. Butry has just learned of a new process to convert dac into prodac. The new process costs $4,000 and yields 1,700 L of prodac for every 2,000 L of dac. Prodac sells for $5 per litre.
-Refer to the Figure.Should Butry process dac further or sell now,and what will be the effect on income?

A) Do not process further, because income will be $5,000 lower.
B) Do not process further, because income will be $1,500 lower.
C) Process further, because income will be $1,500 higher.
D) Process further, because income will be $5,000 higher.