Question

CharCore mixes together wood chips and pine oil. After joint manufacturing costs of $2,000 have been incurred, the mixture separates into two products, granulated charcoal and methyl alcohol. At the split-off point, granulated charcoal can be sold for $5,000 and the alcohol can be sold for $9,000. The charcoal can be further processed at a cost of $6,000 to make air filters which could be sold for $15,000. The alcohol can be further processed at a cost of $7,000 to make a cleaning solvent which could be sold for $14,000. What is the net increase (decrease) in operating income from cleaning solvents?

Answer 1

Net increase in operating income from cleaning solvents is $4,000.

Additional revenue from further processing:

$15,000 - $5,000 = $10,000

Net increase:

$10,000 - $6,000 = $4,000

Revenue is the money earned from normal business operating and is calculated by multiplying the average sales price by the number of units sold.

The Net income is calculated by deducting costs from revenue . On the income statement, revenue is also known as a sales. Operating income is a company's adjusted revenue after  deducting all operating expenses and depreciation. The costs incurred in order to keep the business running are referred to as the operating expenses.

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