Question

Xing Corp. has two products, Alpha and Theta, which emerge from a joint process with a total joint cost of $12,000. Data for the product Alpha are shown below:

  

Produced from the process	5,000 units
Allocated share of joint costs	$10,500
Cost of processing further	$50,000
Price per unit …
… at split-off point	$68
… after further processing	?

(Q): What is the price per unit after further processing that would make the company indifferent between process further and sell at split-off point?

(A): $  per unit

Answer 1

Answer:

Determination of price per unit after further processing that would make the company indifferent between process further and sell at the split-off point:

Particulars	Amount	Amount
Sales value of product Alpha at the split-off point (5,000 Units x $68)	$340,000
Sales Value if Product Alpha processed further (5,000 Units x $Y)		$5,000Y
Less: Joint Cost	$10,500	$10,500
Less: Cost of further processing of product Alpha		$50,000
Profit	$329,500	$5,000Y - $60,500

Assume price per unit of product Alpha is $Y.

Now, At the indifferent point,

Profit when processed further = Profit at the split-off point

$5,000Y - $60,500 = $329,500

Y= ($329,500 + $60,500) / $5,000

Y = $78

Accordingly, $78 is the price per unit after further processing that would make the company indifferent between process further and sell at split-off point.