Question

Stahl Inc. produces three separate products from a common process costing $100,700. 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. Product 10 Product 12 Product 14 Sales Value at Split-Off Point $60,900 15,700 55,500 Cost to Process Further $100,400 30,800 150,400 Sales Value after Further Processing $189,400 35,900 215,200 Determine total net income if all products are sold at the split-off point. Net incomes 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 s Is the net income different from that determined in part (b)? net income is by s

Answer 1

a.

If products are sold at split off point :

Net income = $132,100 (Total sales ) - 100,700 (Joint cost) = $31,400

b.

If products are sold after further processing:

Net income = $440,500 (Total sales) - 281,600 (Further processing cost) - 100,700 (Joint cost) = $58,200

c.

Incremental profit (loss):

	Product 10	Product 12	Product 14
Sale value after further processing	$189,400	$35,900	$215,200
Sale at split off point	60,900	15,700	55,500
Incremental revenue	128,500	20,200	159,700
Less: Further processing cost	-100,400	-30,800	-150,400
Incremental profit (loss)	$28,100	-$10,600	$9,300

Product	Incremental profit (loss)	Decision
Product 10	$28,100	Should be processed further
Product 12	-10,600	Should be sold at split off point
Product 14	9,300	Should be processed further

Net income = Sales value - Further processing cost - Joint cost

Net income = $420,300 ($189,400+15,700+215,200) - 250,800 ($100,400+150,400) - 100,700

Net income = $420,300 - 250,800 - 100,700 = $68,800

Yes net income is increased by $10,600 ($68,800-58,200)