A company makes two products from a joint input that have the following informat
ID: 2376298 • Letter: A
Question
A company makes two products from a joint input that have the following information:
Sales Value
Estimated further
Sales value after
Pounds
per pound
processing costs
additional processing
Produced
at split off
per pound
per pound
Corn oil
60,000
$0.65
$0.45
$0.75
Corn meal
110,000
$0.50
$0.55
$1.20
The joint cost incurred to produce the two products to the split off point is $130,000
A. Assume that the joint cost is assigned using physical units at split off of each product. How much joint cost would be allocated to each product?
B. Assume that the joint cost is allocated to the products based on the sales value at split off of each product. How much joint cost would be allocated to each product?
C. Which product(s) should be processed further? Be sure to show all calculations.
D. Which of the product(s) should be processed further? Be sure to explain the effect on profit of the decision to process further or not to process further.
A company makes two products from a joint input that have the following information:
Sales Value
Estimated further
Sales value after
Pounds
per pound
processing costs
additional processing
Produced
at split off
per pound
per pound
Corn oil
60,000
$0.65
$0.45
$0.75
Corn meal
110,000
$0.50
$0.55
$1.20
Explanation / Answer
A 60,000/170,000 *130,000= 45,882.35
110,000/170,000 *130,000= 84,117.65
B 39,000/94,000 *130,000= 53,936.17
55,000/94,000 *130,000= 76,063.83
Corn meal should be processed further because its incremental sales value (1.20-.50=.70) is greater than the additional processing costs(.55) Profit will increase by (.70-.55)*110,000= 16,500
Corn oil shold not as incremental sales value (.10) is less than the additional processing costs (.45). Profit would go down by (.45-.10)*60,000=21,000.
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