Question

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input,...

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $90,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: raw sugar, $45,000; brown sugar, $49,500; and white sugar, $53,250.

     Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

Product Additional Processing Costs Sales
Value
  Raw sugar $ 47,970 $ 90,000
  Brown sugar $ 32,000 $ 84,250
  White sugar $ 32,350 $ 104,500


Required:
a.
Compute the Incremental profit (loss) for each product. (Loss amounts should be indicated by a minus sign.)

Raw Sugar Brown Sugar White Sugar
Incremental profit (loss)

b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Raw sugarcheckbox unchecked1 of 3
Brown sugarcheckbox unchecked2 of 3
White sugarcheckbox unchecked3 of 3

c. Which product or products should be processed further? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Raw sugarcheckbox unchecked1 of 3
Brown sugarcheckbox unchecked2 of 3
White sugar
0 0
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Answer #1
a
Raw Sugar Brown Sugar White Sugar
Sales Value after further processing 90000 84250 104500
Sales Value at the split-off point 45000 49500 53250
Total incremental revenue 45000 34750 51250
Less: Additional Processing Costs 47970 32000 32350
Incremental profit (loss) (2970) 2750 18900
b
Raw sugar should be sold at the split-off point
c
Brown sugar and White sugar should be processed further
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