Question

Exercise 12-10 Blue Inc. produces three separate products from a common process costing $100,800. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period. Sales Value at Split-Off Point Cost to Process Further Sales Value after Further Processing Product 10 $59,500 $100,400 $191,000 Product 12 15,600 30,000 34,400 Product 14 55,600 150,400 215,300 Determine total net income if all products are sold at the split-off point. Net income $ Determine total net income if all products are sold after further processing. Net income $ Calculate incremental profit/(loss) and determine which products should be sold at the split-off point and which should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Product Incremental profit (loss) Decision Product 10 $ Product 12 $ Product 14 $ Determine total net income using the results from previous part. Net income $ Is the net income different from that determined in part (b)? , net income is by $

Answer 1

Part a	Computation of net income at split-off point
		Prodcut 10	Prodcut 12	Prodcut 14	Total
	Sales value at split-off point	$59,500	$15,600	$55,600	$1,30,700
	Less:Joint cost				$1,00,800
	Net Income				$29,900
Part b	Computation of net income after further processing
		Prodcut 10	Prodcut 12	Prodcut 14	Total
	Sales value after further processing	$1,91,000	$34,400	$2,15,300	$4,40,700
	Less:Joint cost				$1,00,400
	Less:Additional cost	$1,00,400	$30,000	$1,50,400	$2,80,800
	Net Income				$59,500
Part c	Computation of Incremental profit
		Prodcut 10	Prodcut 12	Prodcut 14
	Incremental Revenue	$1,31,500	$18,800	$1,59,700
	Less:Incremental costs	$1,00,400	$30,000	$1,50,400
	Incremental Profit/(Loss)	$31,100	-$11,200	$9,300
		Incremental Profit/(Loss)	Decision
	Prodcut 10	$31,100	Sale after Further processing
	Prodcut 12	-$11,200	Sales at split-off point
	Prodcut 14	$9,300	Sale after Further processing
Part d	Computation of net income based on Incremental approach
		Prodcut 10	Prodcut 12	Prodcut 14	Total
	Incremental Profit/(Loss)	$31,100	-$11,200	$9,300	$29,200
	Less:Joint cost				100800
	Net Income				-$71,600
	Yes the Net income as per partd d is lower than the Net income as per part b by $131,100($71,600+59,500)