Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $43,000 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 | $ | 25,800 | $ | 17,200 | $ | 43,000 | ||||
| Sales value at split-off point | $ | 30,000 | $ | 20,000 | $ | 50,000 | ||||
| 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?
c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?
a) Financial Advantage (disadvantage) of product X
| Sales value after further processing | 47000 |
| Sales value at split off | -30000 |
| Incremental revenue | 17000 |
| Less: Incremental cost | -23800 |
| Financial advantage (disadvantage) | -6800 |
b) Financial Advantage (disadvantage) of product Y
| Sales value after further processing | 57500 |
| Sales value at split off | 20000 |
| Incremental revenue | 37500 |
| Less: Incremental cost | -18100 |
| Financial advantage (disadvantage) | 19400 |
c) Minimum amount for product X = 25800
d) Minimum amount for product Y = 17200
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