Question

2. JOINT PRODUCTION DECISIONS Grassy Fertilizer manufactures two lines of garden grade fertilizer as part of a joint production process: GF10 and GF20. Joint costs up to Grassy's split-off point total $85,000 per batch. These joint costs are allocated to GF10 and GF20 in proportion to their relative sales values at the split-off point of $40,000 and $60,000, respectively. Both lines of garden grade fertilizer can be further processed into commercial grade fertilizer. The following table summarizes the costs and revenue associated with additional processing of GF10 and GF20 Additional processing costs Final selling price per batch of commercial grade fertilizer $18,000 $67,000 GF10 GF20 38,000 97,000 a. The $85,000 in joint costs should be allocated to each product as follows: GF10 $ GF20 $ b. Which product (GF10 or GF20) would result in a net decrease in operating income if processed into a commercial grade fertilizer? c. Which product (GF10 or GF20) would result in a net increase in operating income if processed into a commercial grade fertilizer?

Answer 1

2. a. the Joint a " Joint cost The 70207 Cost wald be allocared Pke this! GFIO GF 20 sales volce al plat off $ 40000 $ 60000 $100,000 pecentage of total uoy. | 601. 100%. Joent cost coecated L'$ 87000*04. Ponies mais oud $ 51,000 $ 85,000 | The Pmpact of further poocessing coll be! LGFIO GF 20. Anal sellPng porce per batch of commercial $67,000 $ 97,000 goade footlized Selling pofce ganden goode feorflazer 40.000 60000 Incremental Selling porce $ 27,000 $37,000 Adde tronal poocessing cast $18,000 $ 38,000 Incoomental profef Class I of heotheo popcessing $9,000 $(1,000) b) GF 20 woceld result in a ner decrease 80 operating frome of poocessed Pato a commercial goede fedt/p200. C GF 10 coceed reset in a net increase to operating income if processed Pato a commercial goade fertl/zeq.