Question

Exercise 20-10 Stahl Inc. produces three separate products from a common process costing $100,000. 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 $60,800 15,200 55,600 Cost to Process Further $100,900 30,400 150,400 Sales Value after Further Processing $190,500 35,600 214,000 x Your answer is incorrect. Try again. Determine total net income if all products are sold at the split-off point. Net income 30400 x Your answer is incorrect. Try again. Determine total net income if all products are sold after further processing. Net income Net income O

Answer 1

1. Determine total net income if all products are sold at split off point : $31,500

Net Income = Total revenue - Joint Cost

= $131,600 - $100,000

= $31,600

2. Determine total income if all products are sold after further processing : $58,400

Net Income = Revenue after split off point - Total further processing cost - Joint Cost

= $440,100 - $281,700 - $100,000

= $58,400

3. Incremental profit and decision for further processing (Refer working)

Product 10 : $28,800 should be further processed

Product 12 : -$10,000 should not be further processed

Product 14 : $8,000 should be further processed

4. Total Net Income : $68,400

Total Revenue = Product 10 after further processing + Product 12 at split off point + Product 14 after further processing

= $190,500 + $15,200 + $214,000

= 419,700

Further processing cost = Product 10 + Product 14

= $100,900 + $150,400

= $251,300

Net Income = Total Revenue - Further processing cost - Joint Cost

= $419,700 - $251,300 - $100,000

= $68,400

Notes:

1. Workings
   Incremental revenue Incremental Profit/(loss) Sale value at split Further processing Sale Value after off point cost further processing Product 10 $ 60,800.00 $ 1,00,900.00 $ 1,90,500.00 Product 12 $ 15,200.00 $ 30,400.00 $ 35,600.00 Product 14 $ 55,600.00 $ 1,50,400.00 $ 2,14,000.00 Total $ 1,31,600.00 $ 2,81,700.00 $ 4,40,100.00 $ $ $ 1,29,700.00 $ 20,400.00 $ 1,58,400.00 $ 28,800.00 -10,000.00 8,000.00
   
2. Be careful while reading figures (with commas) in working notes.