Question

Bowen Company produces products P, Q, and R from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced. Data for Bowen's operations for the current year are as follows:

          

Product	Units Produced	Allocated Joint Sales Value	Sales Value at Split-off
P	4,000	$28,000	$38,000
Q	7,000	49,000	47,000
R	2,000	14,000	16,000

Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional cost of $30,000 and can then be sold for $65,000. Product R can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $25,000.

           

Required:

Which products should be processed beyond the split-off point? Show all calculations.

Answer 1

Answer- Product Q & Product R should be sold at split-off point and Product P should be processed further.

Explanation-

Bowen Company
Statement Of Incremental Profit/(loss)
Product	Sale value at Split-Off-Point	Sale value of processed product	Incremental sale	Cost to further process	Incremental profit/(loss)
	$	$	$	$	$
	(a)	(b)	(c=b-a)	(d)	(e=c-d)
P	38000	50000	12000	10000	2000
Q	47000	65000	18000	30000	-12000
R	16000	25000	9000	12000	-3000