lbsen Company makes two products from a common input. Joint processing costs up

Question

lbsen Company makes two products from a common input. Joint processing costs up to the split-off point total $48,700 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Allocated joint processing costs Sales value at split-off point Costs of further processing Sales value after further processing Product X 18,900 25,900 23,400 49,000 ProductY 29,800 37,850 17,700 56,700 Total $48,700 63,750 41,100 $105,700 Required a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.) b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? (Negative amount should be indicated by a minus sign.)

Explanation / Answer

Calculate financial advantage (disadvantage)

a) Financial (disadvantage) = -300

b) Financial advantage = 1150

Product X Product Y Sale value after further processing 49000 56700 Sale value at split off point 25900 37850 Incremental revenue 23100 18850 Incremental cost -23400 -17700 Financial advantage (disadvantage) -300 1150

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