Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $49,700 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 | $ | 19,300 | $ | 30,400 | $ | 49,700 | ||||
| Sales value at split-off point | $ | 24,050 | $ | 38,050 | $ | 62,100 | ||||
| Costs of further processing | $ | 23,800 | $ | 18,100 | $ | 41,900 | ||||
| Sales value after further processing | $ | 47,000 | $ | 57,500 | $ | 104,500 | ||||
Required:
a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)
b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? (Negative amount should be indicated by a minus sign.)
The financial advantage of processing Product X beyond the split-off point = Sale value after further processing - Sale value at split-off point - Costs of further processing
= $47,000 - $24,050 - $23,800
= -$850
Financial disadvantage of processing Product X beyond the split-off point = $850
The financial advantage of processing Product Y beyond the split-off point = Sale value after further processing - Sale value at split-off point - Costs of further processing
= $57,500 - $38,050 - $18,100
= $1,350
Financial advantage of processing Product Y beyond the split-off point = $1,350
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