Question

Stahl Inc. produces three separate products from a common process costing $ 100,500 . Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.

		Sales Value at Split-Off Point				Cost to Process Further				Sales Value after Further Processing
Product 10			$ 60,100				$ 100,300				$ 190,200
Product 12			15,500				29,200				34,200
Product 14			54,100				151,000				214,800

(a)

Determine total net income if all products are sold at the split-off point.

b)

Determine total net income if all products are sold after further processing.

c)

Calculate incremental profit/(loss) and determine which products should be sold at the split-off point and which should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

d) Determine total net income using the results from previous part

Is the net income different from that determined in part (b)?

Answer 1

Solution a:

Computation of net income - If products sold at split off Point
Particulars	Product 10	Product 12	Product 14	Total
Sale Value	$60,100.00	$15,500.00	$54,100.00	$129,700.00
Joint cost				$100,500.00
Net Income				$29,200.00

Solution b:

Computation of net income - If products sold after further processing
Particulars	Product 10	Product 12	Product 14	Total
Sale Value	$190,200.00	$34,200.00	$214,800.00	$439,200.00
Further processing cost	$100,300.00	$29,200.00	$151,000.00	$280,500.00
Joint cost				$100,500.00
Net Income				$58,200.00

Solution c:

Computation of incremental profit to determine which product to be sold at split off and which is to be further processed
Particulars	Product 10	Product 12	Product 14
Sale Value after further processing	$190,200.00	$34,200.00	$214,800.00
Less: Sale value at Split off Point	$60,100.00	$15,500.00	$54,100.00
Less: Further Procesing Cost	$100,300.00	$29,200.00	$151,000.00
Incremental Profit (Loss)	$29,800.00	-$10,500.00	$9,700.00
Decesion	Further process	Sold at split off	Further process

Solution d:

Computation of net income - If products 10 and 14 further processed and prodcut 12 sold at split off point
Particulars	Product 10	Product 12	Product 14	Total
Sale Value	$190,200.00	$15,500.00	$214,800.00	$420,500.00
Further processing cost	$100,300.00	$0.00	$151,000.00	$251,300.00
Joint cost				$100,500.00
Net Income				$68,700.00