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LANG Company manufactures products Katran and Klare from a joint process. Product Katran has been allocated...

LANG Company manufactures products Katran and Klare from a joint process. Product Katran has been allocated $200,000 of total joint costs of $600,000 for the 5,000 units produced. Katran can be sold at the splitoff point for $100 per unit, or it can be processed further with additional costs of $200,000 and sold for $325 per unit. Required: Calculate the incremental loss or profit of processing Katran further.

A.

$325,000
B.

$1,125,000
C.

$125,000
D.

$925,000
E.

some other amount
F.

$625,000
G.

$400,000
H.

$800,000
Business   Accounting   
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Answer #1

Solution is D. $925000

Differential cost or Incremental cost refers to the difference between the cost of two alternative decisions. The cost occurs when a business faces several options

Total Unit Produce 5000 unit

Particular Unit Cost Total Cost
Incremental Revenue if further Processed (325-100)=$225 $1125000
Incremental Cost of futher Processing
Additional Fixed Cost $200000
Total Incremental Revenue or (Loss ) $925000

Allocated Cost before Split off point is not relevant for decision as will going to incure whatever will be the decision of Selling at Spitoff point or Further Processing.

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