Iaci Company makes two products from a common input. Joint processing costs up t
ID: 2453628 • Letter: I
Question
Iaci Company makes two products from a common input. Joint processing costs up to the split-off point total $42,000 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: Product X Product Y Total Allocated joint processing costs $22,400 $19,600 $42,000 Sales value at split-off point $32,000 $28,000 $60,000 Costs of further processing $11,600 $25,300 $36,900 Sales value after further processing $44,800 $53,200 $98,000
Explanation / Answer
Product X
Product Y
Total
Sales value at split-off point
$ 32,000
$ 28,000
$ 60,000
Less: Allocated joint processing costs
$ (22,400)
$ (19,600)
$ (42,000)
Profit At Split off point
$ 9,600
$ 8,400
$ 18,000
Sales value after further processing
$ 44,800
$ 53,200
$ 98,000
Less: Allocated joint processing costs
$ (22,400)
$ (19,600)
$ (42,000)
Less: Costs of further processing
$ (11,600)
$ (25,300)
$ (36,900)
Profit after further processing
$ 10,800
$ 8,300
$ 19,100
Decision:
For Product X:
Profit after further processing is more than profit at split off point, hence it is better to further process the product and then sell.
For Product Y:
Profit after further processing is less than profit at split off point, hence it is better to sell product at split off point.
Product X
Product Y
Total
Sales value at split-off point
$ 32,000
$ 28,000
$ 60,000
Less: Allocated joint processing costs
$ (22,400)
$ (19,600)
$ (42,000)
Profit At Split off point
$ 9,600
$ 8,400
$ 18,000
Sales value after further processing
$ 44,800
$ 53,200
$ 98,000
Less: Allocated joint processing costs
$ (22,400)
$ (19,600)
$ (42,000)
Less: Costs of further processing
$ (11,600)
$ (25,300)
$ (36,900)
Profit after further processing
$ 10,800
$ 8,300
$ 19,100
Decision:
For Product X:
Profit after further processing is more than profit at split off point, hence it is better to further process the product and then sell.
For Product Y:
Profit after further processing is less than profit at split off point, hence it is better to sell product at split off point.
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