Question

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $33,300...

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $33,300 of the total joint costs of $54,000. A total of 2,800 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $10 per unit, or it can be processed further for an additional total cost of $10,800 and then sold for $12 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point?

  • ($41,700)

  • $(5,200)

  • $22,800

  • ($28,100)

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Answer #1

Answer:

Correct answer is:

$(5,200)

Explanation:

Sale price of Product QI at the split-off point = $10 per unit

Total units produced of product QI = 2,800 units

If processed further, additional total cost = $10,800

Sale price of product Q1, if processed and then sold = $12 per unit

Incremental contribution, if processed further = Number of units * (Incremental contribution per unit) - Incremental cost

= 2,800 * ($12- $10) - $10,800

= $5,600 - $10,800

= ($5,200)

Hence option B is correct and other options A, C and D are incorrect.

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