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Two products, QI and VH, emerge from a joint process. Product QI has been allocated $31,300...

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $31,300 of the total joint costs of $52,000. A total of 2,600 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $15 per unit, or it can be processed further for an additional total cost of $10,600 and then sold for $17 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point?

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Answer #1

Gain from sale of Product QI at split-off point

Gain = Number of units sold x Selling price at split-off point

= 2,600 Units x $15 per unit

= $39,000

Gain from sale of Product QI after further processing

Gain = [Number of units sold x Selling price] – Additional costs

= [2,600 Units x $17 per unit] - $10,600

= $44,200 - $10,600

= $33,600

The financial disadvantage for the company compared with sale in its unprocessed form directly after the split-off point

The decrease in the profit = Gain from sale of Product QI at split-off point - Gain from sale of Product QI after further processing

= $39,000 - $33,600

= $5,400

“Financial; Disadvantage, Decrease in Profit = $5,400”

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