Question

WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows:

	Product X		Product Y		Product Z
Units produced		1,400		1,900		2,900
Per unit sales value at split-off	$	12.00	$	17.00	$	14.00
Added processing costs per unit	$	3.00	$	5.00	$	5.00
Per unit sales value if processed further	$	18.00	$	18.00	$	23.00

The cost of the joint raw material input is $67,000. Which of the products should be processed beyond the split-off point?

	Product X	Product Y	Product Z
A)	yes	yes	no
B)	yes	no	yes
C)	no	yes	no
D)	no	yes	yes

Answer 1

Solution:

Financial advantage (disadvantage) to determine which product to be sold at split off and which is to be further processed - WP Corporation
Particulars	Product X	Product Y	Product Z
Selling price after further processing	$18.00	$18.00	$23.00
Selling price at split off point	$12.00	$17.00	$14.00
Increment revenue per pound or gallon	$6.00	$1.00	$9.00
Total quarterly output in pound or gallon	1400	1900	2900
Total Incremental Revenue	$8,400.00	$1,900.00	$26,100.00
Total incremental processing cost	$4,200.00	$9,500.00	$14,500.00
Financial advantage (disadvantage) of further processing	$4,200.00	-$7,600.00	$11,600.00
Process Further?	Yes	No	Yes

Hence option B is correct.