Question 4 ollows: Product x.$25,000; Product Y. $45,000: and product Z,$30,000.

Question

Question 4 ollows: Product x.$25,000; Product Y. $45,000: and product Z,$30,000. Each product may be sold at the split-off point or processed further. The additional processing costs and the sales value after further processing for each product (on an annual basis) are as follows. Ciaran Corporation manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off poin $50,000 per year. The company all Tir Att 23 $5000per year The company llcates these costs to the joint products on the basis of their totalsales value at the split-off point. These sales values are as Product Product Product 2Z Additional processing costs $10,000 $32,000 $6,000 Sale value after processing further $40,000 $75,000 $37.000 Which product or products should be processed further? Product X and Y Product X and Z O Products Y and Z Product X Previous Next

Explanation / Answer

Incremental technique is used to determine whether to process the product further or not. Simply compare the incremental processing costs with the incremental sales value that product will generate after further processing, if the incremental sales value is greater than incremental processing cost then go for further processing or vice-versa.

X

Y

Z

Sales value after Further Processing

40000

75000

37000

Less: Sales value at Split-off point

25000

45000

30000

Incremental Revenue

15000

30000

7000

Incremental Costs

10000

32000

6000

Income or Loss

5000

-2000

1000

As the incremental income is positive for product X and Z, so company should further process these product.

Hence, Option – B is correct.

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X

Y

Z

Sales value after Further Processing

40000

75000

37000

Less: Sales value at Split-off point

25000

45000

30000

Incremental Revenue

15000

30000

7000

Incremental Costs

10000

32000

6000

Income or Loss

5000

-2000

1000

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