Question

Stahl 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 $60,400 $100,600 $190,000 Product 12 15,600 30,100 35,400 Product 14 55,500 150,800 214,500 Determine total net income if all products are sold at the split-off point. Determine total net income if all products are sold after further processing. 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 $ eTextbook and Media Determine total net income using the results from previous part. Net income $ Is the net income different from that determined in part (b)?

Answer 1

a) Calculation of Net Income if sold at split off point (Amounts in $)

	Product 10	Product 12	Product 14	Total
Sales Value at Split-Off Point	60,400	15,600	55,500	131,500
Common Process Costing				(100,800)
Net Income				30,700

Therefore the net income if all products are sold at the split-off point is $30,700.

b) Calculation of Net Income if all products are sold after further processing (Amounts in $)

	Product 10	Product 12	Product 14	Total
Sales Value after Further Processing	190,000	35,400	214,500	439,900
Cost to Process Further	(100,600)	(30,100)	(150,800)	(281,500)
Product Margin	89,400	5,300	63,700	158,400
Common Process Costing				(100,800)
Net Income				57,600

Therefore the net income if all products are sold after further processing is $57,600.

c) Calculation of Incremental Profit (or Loss) (Amounts in $)

Product	Product Margin If Sold at Split off (A)	Product Margin if sold after further processing (B)	Incremental Profit (or Loss) (B-A)	Decision
Product 10	60,400	89,400	29,000	Process Further
Product 12	15,600	5,300	(10,300)	Sell at Split off
Product 14	55,500	63,700	8,200	Process Further
Total	131,500	158,400	26,900

Therefore product 10 and product 14 should be processed further and product 12 should be sold at split off point.

Note:- The common processing costs is same in both situations (i.e. whether sale at split off or process further) and hence will not effect the decision and hence not relevant for the decision.