Question

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $76,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: raw sugar, $38,000; brown sugar, $42,000; and white sugar, $48,750.

     Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

Product	Additional Processing Costs			Sales Value
Raw sugar	$	40,340		$	76,000
Brown sugar	$	28,700		$	73,000
White sugar	$	29,950		$	95,500

Required:
a. Compute the Incremental profit (loss) for each product. (Loss amounts should be indicated by a minus sign.)

b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

c. Which product or products should be processed further? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Answer 1

Answer:
(a)
	Raw sugar	Brown sugar	White sugar
Sales Value after further processing	$ 76,000	$ 73,000	$ 95,500
Less: Sales Value at split off point	($ 38,000 )	($ 42,000 )	($48,750)
Incremental revenue	$ 38,000	$ 31,000	$ 46,750
Less: Additional processing costs	($40,340)	($28,700)	($29,950)
Incremental profit / Loss	($2,340)	$ 2,300	$ 16,800
(b)
Raw sugar should be sold at split-off point, since the product incurrs incremental loss.
( c )
Brown sugar and white sugar should be processed further, since the product incurrs incremental Profits