Question

Product X and Y are made from a common input. Joint processing costs up to the split-off point total $46,400 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:

	Product X			Product Y			Total
Allocated joint processing costs	$	18,200		$	28,200		$	46,400
Sales value at split-off point	$	25,550		$	37,300		$	62,850
Costs of further processing	$	22,700		$	17,000		$	39,700
Sales value after further processing	$	47,600		$	55,300		$	102,900

Required:

What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)

What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? (Negative amount should be indicated by a minus sign.)

Answer 1

Part 1)

The financial advantage / (disadvantage) of further processing product X beyond split off point is

= Sale value after further processing of X - cost of further processing of X- sale value at split off point of X

= 47600 - 22700 -25550

= $ (650)

= $ 650 financial disadvantage

Thus the correct answer financial disadvantage = $ 650

Part 2)

The financial advantage / (disadvantage) of further processing product Y beyond split off point is

= Sale value after further processing of Y - cost of further processing of Y- sale value at split off point of Y

= 55300-17000-37300

= $ 1000

= $ 1000 financial advantage

Thus the correct answer financial advantage = $ 1000