Question

20. Two products, QI and VH, emerge from a joint process. Product QI has been allocated $30,300 of the total joint costs of $51,000. A total of 2,500 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $14 per unit, or it can be processed further for an additional total cost of $10,500 and then sold for $16 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point?

Answer 1

Calculate net increase(decrease) in operating income from further processing of QI as follows: A Particulars 2 QI revenue if processed further 3 Less: Revenue if QI is sold at split-off point 4 Incremental revenue from further processing 5 Less: Incremental cost to further process Net increase (decrease) in operating income 6 from further processing of QI B Amount $40,000 $35.000 $5,000 $10.500 ($5,500) Therefore, there would be financial disadvantage of $5,500 for the company, if product QI is processed further and sold Calculations are shown below: А Particulars 2 QI revenue if processed further 3 Less: Revenue if QI is sold at split-off point 4 Incremental revenue from further processing 5 Less: Incremental cost to further process Net increase (decrease) in operating income 6 from further processing of QI Amount =16*2500 =14*2500 =B2-B3 10500 =B4-B5