Products Gamma and Delta are joint products. The joint production cost of the pr

Question

Products Gamma and Delta are joint products. The joint production cost of the products is $800. Gamma has a market value of $500 at the split-off point. If Gamma is further processed at an additional cost of $600, its market value is $1,400. Product Delta has a market value of $1,100 at the split-off point. If Product Delta is further processed at an additional cost of $300, its market value is $1,400.  Using the relative sales value method, calculate the joint product cost that would be allocated to Gamma and Delta.  How do you know if one of the products should be further processed?

Explanation / Answer

calculate the joint product cost that would be allocated to Gamma and Delta.

Joint Cost = $800

Cost Allocated to Gamma = 800*500/1600 = 250

Cost Allocated to Delta = 800*1100/1600 = 550

How do you know if one of the products should be further processed?

We can know by incremental cost and incremental revenue i.e incremental profit from further processing.

Product Gamma should be further processed which will increase profit by $300

Product Delta should be further processed or not which will not affect profit , it will be constant, it is discretionary to process or not

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