Nationwide Manufacturing Company manufactures three products from a common input

Question

Nationwide Manufacturing Company manufactures three products from a common input in a joint processing system. Joint processing costs, up to the split-off point, total $180,000. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: Product X, $140,000; Product Y, $200,000; Product Z, $130,000.
Each product may be sold at the split-off point or processed further. Additional processing requires no special equipment or facilities. The additional annual processing costs and sales value after further processing for each product are shown below:
Product Additional Process Costs Sales Value

X $ 60,000 $ 210,000
Y 55,000 270,000
Z 20,000 135,000

Which product or products should be sold at the split-off point, and which products should be processed further?

Explanation / Answer

X and Y should be processed further because their incremental sales value (210-140=70, and 270-200=70) exceeds the additional process costs (60,55) Z should not because we have 135-130=5 which is less than 20.

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