Dec 2013

common process. Each of the products can either be sold by Division A to the external market at split-off point (after
the common process is complete) or can be transferred to Division B for individual further processing into products
LX, MX and SX.
In November 2013, which is a typical month, Division A’s output was as follows:
Product Kg
L 1,200
M 1,400
S 1,800
The market selling prices per kg for the products, both at split-off point and after further processing, are as follows:
$ $
L 5·60 LX 6·70
M 6·50 MX 7·90
S 6·10 SX 6·80
The specific costs for each of the individual further processes are:
$
Variable cost of $0·50 per kg of LX
Variable cost of $0·70 per kg of MX
Variable cost of $0·80 per kg of SX

Further processing leads to a normal loss of 5% at the beginning of the process for each of the products being
processed.
Required:

(a) Calculate and conclude whether any of the products should be further processed in Division B in order to
optimise the profit for the company as a whole.

I dont understand the answer, what I did,
6.7- ({ 1/0.95 X 0.5} + 5.6) for LX