Bowen Company produces products P, Q, and R from a joint production process. Eac

Question

Bowen Company produces products P, Q, and R from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced Data for Bowen's operations for the current year are as follows: Allocated Joint Production Cost 28,000 49,000 14,000 Sales Value at Split-off Product Units Produced 4,000 7,000 2,000 $38,000 47,000 16,000 Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000 Which products should be processed beyond the split-off point?

Explanation / Answer

Incremental analysis :

Product P Product Q Product R Sale value after further processing 50000 65000 25000 Sale value at split off point 38000 47000 16000 Incremental revenue 12000 18000 9000 Incremental cost -10000 -35000 -6000 Incremental profit (loss) 2000 -17000 3000 Analysis Yes No Yes

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