Question

Superior Company manufactures three products using the same production process: tables, benches, and planters. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per units at each point in production, and the additional processing costs are as follows:

Product	Number of Units Produced	Selling Price at Split-Off	Selling Price After Processing	Additional Processing Costs
tables	2000	$11.00	$16.00	$12,000
benches	5000	$12.00	$16.20	$16,000
planters	3000	$19.40	$25.00	$11,000

1) Which information is not relevant to the decision on whether or not to process the products further (1 pt)?

2) Prepare an incremental analysis of the three products (6 pts).

3) Which products should be processed further and which should be sold at the split-off point (2 pts)?

4) Would your decision in #3 be different if the company was using quantity of output to allocate joint costs? Explain (1 pt)

Answer 1

1	The costs incurred up to the split-off point of $200,000 is not relevant
	to the decision on whether or not to process the products further
2		Tables	Benches	Planters
	Incremental Revenue	10000	21000	16800
	Incremental costs	12000	16000	11000
	Incremental Profit / (loss)	-2000	5000	5800
3	Table should be sold at split-off and Benches and Planters should be
	processed further.
4	No because joint costs does not have any impact on decision to process
	further