Question

Collie Company has a joint process that produces three products: R, D and A. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $300,000. Other relevant data are as follows:

Product	Sales Value		Costs after		Sales Value
	at Split-Off		Split-Off		at Completion
	$		$		$
R	120,000		260,000		420,000
D	80,000		140,000		190,000
A	150,000		190,000		350,000

Required:

1. Determine total net income if all products are sold at split-off point.                   2 Marks
2. Determine total net income if all products are sold after processing.                  2 Marks

c. Using incremental analysis determine which products should be sold at split-off point and which should be processed further.                                            

Answer 1

A.

Total sales value = $120000 + $80000 + 150000

= $350000

Total joint cost = $300000

Therefore,

Total net income =$350000 - $300000

=$50000.

B. Total sales value = $420000 + $190000 + $350000

=$960000

Total joint cost = $300000

Total further processing cost = $260000 + $140000 + $190000 = $590000

Therefore,

Total net income = $960000 - $300000 - $590000

= $70000

C.

Product		R	D	A
	Sales Value After Further Process	$420000	$190000	$350000
	Less: Further Processing Cost	$260000	$140000	$190000
	Less:Sales Value At Split -off	$120000	$80,000	$150000
	Net Benefit if Further Process	$40000	-$30000	$10000

Since net Benefit further processing of product D is negative it should be sold at Split off. The other two Product R and A have positive Net benefits form Further process. Hence these two products should be further processed.

Please rate, Thanks.