Joint Cost Cheyenne, Inc produces three products from a common input. The joint

Question

Joint Cost Cheyenne, Inc produces three products from a common input. The joint costs for a typical quarter follow Direcs manerials $48.000 Direct lwbor The revenues from each product are as follows Prodct A $74000 Product B Product C 29,000 Management is considering processing Product A beyond the split-off point, which would increase the sales value of Product A to $116,000. However, to process Product A further means that the company must rent some special equipment costing $17,500 per quarter. Additional materials and lebor also needed would cost $12,650 per quarter a. What is the gross profie currently being earned by the three products for one quarter? b. What is the effect on quarterly profits if the company decides to process Product A further? 5 6 7 8 9 L.

Explanation / Answer

Solution 1 Gross profit Sales -A 74000 -B 79000 -C 29000 182000 Less joint cost materail 48000 labour 53000 oh 63000 164000 Gross profit 18000 Solution 2 Whether to process further product a or not Existing profit 18000 Add: new revenue from Product A 42000 (116000-74000) Less extra cost Materail 12650 Rental cost 17500 Net profit 29850 Better to process Product A further as Gross profit increases. Profit will increase by (29850-18000)= 11850

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