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?