Question

Stahl Inc. produces three separate products from a common process costing $100,200. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.

		Sales Value at Split-Off Point				Cost to Process Further				Sales Value after Further Processing
Product 10			$61,000				$100,100				$190,000
Product 12			15,000				29,100				34,700
Product 14			54,000				149,800				214,900

Part 1

Determine total net income if all products are sold at the split-off point.

Net income

$

Part 2

Determine total net income if all products are sold after further processing.

Net income

$

Part 3

Calculate incremental profit/(loss) and determine which products should be sold at the split-off point and which should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Product		Incremental profit (loss)		Decision
Product 10		$		Should be processed furtherShould be sold at the split-off point Should be processed furtherShould be sold at the split-off point
Product 12		$		Should be sold at the split-off pointShould be processed further Should be processed furtherShould be sold at the split-off point
Product 14		$		Should be sold at the split-off pointShould be processed further Should be processed furtherShould be sold at the split-off point

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Part 4

Determine total net income using the results from previous part.

Net income

$

Is the net income different from that determined in part (b)?

NoYes YesNo, net income is increasingdecreasing increasingdecreasing by $

Answer 1

Solution a:

Computation of net Income if all products sold at split off point
	Product 10	Product 12	Product 14	Total
Sale value at Split off point	$61,000	$15,000	$54,000	$130,000
Less : common process cost				$100,200
Total Net income				$29,800

Solution b:

Computation of net Income if all products sold after further process
	Product 10	Product 12	Product 14	Total
sale value after further processed	$190,000	$34,700	$214,900	$439,600
Less : cost to process further	$100,100	$29,100	$149,800	$279,000
Less : common process cost				$100,200
Total Net income				$60,400

Solution c:

Computation of Incremental Profit (Loss) and taking decision
	Product 10	Product 12	Product 14	Total
Sale value after further processed	$190,000	$34,700	$214,900	$439,600
Less : cost to process further	$100,100	$29,100	$149,800	$279,000
Less: Sales Value at split off point	$61,000	$15,000	$54,000	$130,000
Incremental Profit/ (Loss)	$28,900	-$9,400	$11,100	$30,600
Decision	Process Further	Sell at split off point	Process Further

Solution d:

Computation of net Income as per decision
	Product 10	Product 12	Product 14	Total
Sale value as per decision	$190,000	$15,000	$214,900	$419,900
Less : cost to process further	$100,100		$149,800	$249,900
Less : common process cost				$100,200
Total Net income				$69,800

Yes, net income is increasing by ($69800 -$60400=) $9,400