Question

Question 3 - Sell or Process Further Jimbob Co. manufactures three products from a common input in a joint processing operation. All units of all three products can be sold at the split-off point. Alternatively all three products can be further processed and all units after further processing can be sold. Information about the products is as follows: Product 1001 1002 1003 Allocated costs at split-off $50,000 $90,000 $60,000 Sales values at split-off $100,000 $180,000 $120,000 Further processing costs $70,000 $80,000 $24,000 Sales values after furthering processing $160,000 $300,000 $150,000 Required: Which products should be sold at the split-off point and which should be further processed and sold after further processing?

Answer 1

	Product	1001	1002	1003
	Sales Value After Further Process	$ 1,60,000	$ 3,00,000	$   1,50,000
	Less: Further Processing Cost	$      70,000	$     80,000	$      24,000
	Less:Sales Value At Split -off	$ 1,00,000	$ 1,80,000	$   1,20,000
	Net Benefit if Further Process	$    -10,000	$     40,000	$         6,000
	Since net Benefit further processing of product 1001 is negative it should be sold at Split off. The other two Product 1002 and 1003 have positive Net benefits form Further process. Hence these two products should be further processed.