Question

1. Guster Chemical Company (GCC) manufactures two products as part of a joint process: X1 and Y1. Joint costs up to the split-off point total $23,000. The joint costs are allocated to X1 and Y1 in proportion to their relative sales values. At the split-off point, product X1 can be sold for $32,100, whereas product Y1 can be sold for $74,900. Product X1 can be processed further to make product X2, at an incremental cost of $39,000. X2 can be sold for $86,000. Product Y1 can be processed further to make product Y2, at an incremental cost of $49,000. Y2 can be sold for $96,000.

The net change in operating income resulting from a decision to manufacture product X2 is:

2. Guster Chemical Company (GCC) manufactures two products as part of a joint process: X1 and Y1. Joint costs up to the split-off point total $23,000. The joint costs are allocated to X1 and Y1 in proportion to their relative sales values. At the split-off point, product X1 can be sold for $32,100, whereas product Y1 can be sold for $74,900. Product X1 can be processed further to make product X2, at an incremental cost of $39,000. X2 can be sold for $86,000. Product Y1 can be processed further to make product Y2, at an incremental cost of $49,000. Y2 can be sold for $96,000.

The net change in operating income resulting from a decision to manufacture product Y2 is:

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

E Answer Part 1) Change in net operating income if Product X2 is manufactured = Revenue from X2 - additional cost-revenue forgone of X1 = 86000-39000-32100 = $ 14900 Thus the operating income will increase by $ 14900 Part 2) Change in net operating income if Product Y2 is manufactured = Revenue from Y2 - additional cost-revenue forgone of Y1 = 96000-49000-74900 = $ 27900 Thus the operating income will decrease by $ 27900