Question

Joint Joinery makes two products from a common input. Joint processing costs up to the split-off point total $49,600 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

	Dados	Dovetails	Total
Allocated joint processing costs	$ 19,200	$ 30,400	$ 49,600
Sales value at split-off point	$ 24,000	$ 38,000	$ 62,000
Cost of further processing	$ 23,700	$ 18,000	$ 41,700
Sales value after further processing	$ 46,800	$ 57,300	$ 104,100

Required:

a. What is the net monetary advantage (disadvantage) of processing Dados beyond the split-off point? If disadvantage include '-'
b. What is the minimum amount the company should accept for Dados if they are to be sold at the split-off point?

Answer 1

a. There is a net disadvantage of processing Dados after split off point of $ 900 ($4800-$3900).

calculations:-

	Amt. in $
Particulars	If sold at split off point	If sold after further processing
Sales value	24000	46800
Joint processing cost as allocated	-19200	-19200
Further processing cost	0	-23700
Net profit	4800	3900

b. Minimum amount that the company should accept for Dados if they are to be sold at the split off point=$ 23100 (19200+3900) to be indifferent between sales at split off and sale after further processing.