2C2D GRAPEVINE CORPORATION PRODUCES TWO JOINT PRODUCTS, JP-1 AND JP-2...
255.
CSO: 2C2f
LOS: 2C2d
Grapevine Corporation produces two joint products, JP-1 and JP-2, and a single by-
product, BP-1, in Department 2 of its manufacturing plant. JP-1 is subsequently
transferred to Department 3 where it is refined into a more expensive, higher-priced
product, JP-1R, and a by-product known as BP-2. Recently, Santa Fe Company
introduced a product that would compete directly with JP-1R and, as a result, Grapevine
must reevaluate its decision to process JP-1 further. The market for JP-1 will not be
affected by Santa Fe’s product, and Grapevine plans to continue production of JP-1, even
if further processing is terminated. Should this latter action be necessary, Department 3
will be dismantled.
Which of the following items should Grapevine consider in its decision to continue or
terminate Department 3 operations?