Question

Exercise 20-11 Kirk Minerals processes materials extracted from mines. The most common raw material that it processes results in three joint products: Spock, Uhura, and Sulu. Each of these products can be sold as is, or each can be processed further and sold for a higher price. The company incurs joint costs of $180,100 to process one batch of the raw material that produces the three joint products. The following cost and sales information is available for one batch of each product. Spock Uhura Sulu Sales Value at Split-Off Point $209,600 300,500 454,900 Allocated Joint Costs $41,000 59,000 80,100 Cost to Process Further $110,700 85,500 249,300 Sales Value of Processed Product $299,400 400,100 800,900 Determine the incremental profit or loss that each of the three joint products. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Spock Uhura Sulu Incremental profit (loss)

Answer 1

Answer.

For calculating Incremental profit or loss, we need to find incremental revenue first.

Calculation of incremental revenue = sales value after further processing - sales value at split off point

-	Spock	Uhura	Sulu
Sales value of Processed product	$ 299,400	400,100	800,900
Sales value at split off point	$ 209,600	300,500	454,900
Incremental revenue	$ 89,800	99,600	346,000

Now, with the help of incremental revenue we can easily find incremental profit or loss:

Incremental profit or loss = incremental revenue - Further processing cost

-	Spock	Uhura	Sulu
Incremental revenue	$ 89,800	99,600	346,000
Further processing cost	$ 110,700	85,500	249,300
Incremental Profit/Loss	($ 20,900 )	14,100	96,700

Incremental profit denotes product should be sold after further processing and incremental loss denoted by () in case of spock, denotes that product should be sold as it is or without any processing.

Indication of product sold should be sold as it is or with further processing are as follows:

-	-	Reason
Spock	Sold as it is	There will be incremental loss if sold after processing.
uhura	Process further	Incremental profit if sold after processing.
Sulu	Process further	Incremental profit if sold after processing.