Question

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input,...

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $68,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: raw sugar, $34,000; brown sugar, $37,000; and white sugar, $45,750.

     Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

Product Additional Processing Costs Sales
Value
  Raw sugar $ 35,920 $ 68,000
  Brown sugar $ 26,500 $ 65,500
  White sugar $ 28,350 $ 89,500


Required:
a.
Compute the Incremental profit (loss) for each product. (Loss amounts should be indicated by a minus sign.)

b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Raw sugar

Brown sugar

White sugar

c. Which product or products should be processed further? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Raw sugar

Brown sugar

White sugar

Homework Answers

Answer #1
a
Raw sugar Brown sugar White sugar
Sales value after further processing 68000 65500 89500
Less: Sales value at the split-off point 34000 37000 45750
Incremental revenue 34000 28500 43750
Less: Additional Processing Costs 35920 26500 28350
Total incremental profit or loss -1920 2000 15400
b
Raw Sugar should be sold at the split-off point
c
Brown Sugar and White Sugar should be processed further
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