Question

Bowen Company makes two products from a joint production process. Each
product may be sold at the split-off point or processed further and then
sold. Information concerning these products for last year is given below:

                                              Product X      Product Y
Allocated joint costs ....................     $25,000        $19,000
Sales value after further processing .....     $41,000        $47,000
Sales value at the split-off point .......     $28,000        $23,000
Additional processing costs ..............     $16,000        $19,000

Assume that Bowen Company makes all the correct sell or process further
decisions.

Calculate the net income reported by Bowen Company last year.

Answer 1

First let us analyse whether each product will be sold at split off point or further processed:

	Product X	Product Y
Sale value at split off point	$28,000	$23,000
Less; allocated joint cost	($25,000)	($19,000)
net income if sold at splitoff point	$3,000	$4,000
Sale value after further processing	$41,000	$47,000
Total cost (joint cost + additional processing cost)(16,000+25,000) (19,000+19,000)	(41,000)	(38,000)
net income if sold after further processing	nil	9,000

Now, product x will be sold off without further processing and product y will be further processed.

Net income reported will be:

Net income from product x at split off point	$3,000
Net income from product y after further processing	$9,000
Total net income	$12,000