Question

bsen Company makes two products from a common input. Joint processing costs up to the split-off point total $46,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

	Product X			Product Y			Total
Allocated joint processing costs	$	18,400		$	27,600		$	46,000
Sales value at split-off point	$	20,000		$	30,000		$	50,000
Costs of further processing	$	24,300		$	18,600		$	42,900
Sales value after further processing	$	38,000		$	58,500		$	96,500

Required:

a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)

b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?

c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?

Answer 1

a.) Financial advantage (disadvantage) of processing Product X beyond the split-off point-

Sale value after processing $38000

- Allocated Joint processing costs $18400   

- Costs of further processing $24300

Financial Advantage - $4700   

b.) Financial advantage (disadvantage) of processing Product Y beyond the split-off point-

Sale value after processing $58500

- Allocated Joint processing costs $27600

- Costs of further processing $18600

Financial Advantage   $12300  

c.) Minimum amount the company should accept for Product X if it is to be sold at the split-off point-

Allocated Joint processing costs i.e.  $18400   

d.) Minimum amount the company should accept for Product Y if it is to be sold at the split-off point-

Allocated Joint processing costs i.e.  $27600