Question

laci Company makes two products from a common input. Joint processing costs up to the split-off point total $51,200 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Product X Product YTotal Allocated joint processing costs Sales value at split-off point Costs of further processing Sales value after further processing 19,900 $31,300 $ 51,200 $24,350 $38,350 $ 62,700 $24,400 $18,700 $ 43,100 $58,700 $48,200 $ 106,900 Required: a. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? (Input the amount as a positive value.) Net Disadvantage b. What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off point? (Input the amount as a positive value.) Net advantage

Answer 1

Required a)
Net disadvantage- (550)

Calculation:-
                                                                            Product X
Sale value after further processing             48,200
Less :Cost of further processing                   24,400
Benefit of further processing                        23,800
Less: sale value at split - off point                24,350
Net disadvantage                                                (550)

Required b)
Net advantage- 1650

Calculation:-
                                                                           Product Y
Sale value after further processing             58,700
Less :Cost of further processing                   18,700
Benefit of further processing                        40,000
Less: sale value at split - off point                38,350
Net disadvantage                                               1650

Required c)
Minimum acceptable amount- 23,800

Calculation :-
                                                                           Product X
Sale value after further processing            48,200
Less: Cost of further processing                  24,400
Benefit of processing product X further     23,800

Since the company could earn $23,800 in incremental benefits from processing Product X further, the $23,800 represents the minimum that the company should accept for Product X if it is sold at the split- off point.

Required d)
Minimum acceptable amount- 40,000
                                                                           Product Y
Sale value after further processing            58,700
Less: Cost of further processing                  18,700
Benefit of processing product Y further     40,000

Since the company could earn $40,000 in incremental benefits from processing Product Y further, the $40,000 represents the minimum that the company should accept for Product Y if it is sold at the split- off point.