Upscale Dishwear manufactures two products, salad plates and platters, from a jo

Question

Upscale Dishwear manufactures two products, salad plates and platters, from a joint process. Salad plates are allocated $7,500 of the total joint costs of $25,000. There are 3,000 salad plates produced and 3,000 platters produced each year. Salad plates can be sold at the split-off point for $12 per unit, or they can be hand painted for additional processing costs of $8,400 and sold for $16 for each deluxe salad plate. If the salad plates are processed further and made into deluxe plates, the effect on operating income would be:

Select one:

a. $36,000 net increase in operating income.

b. $3,600 net decrease in operating income.

c. $36,000 net decrease in operating income.

d. $3,600 net increase in operating income.

Explanation / Answer

If the salad plates are processed further and made into deluxe plates, the effect on operating income would be:

d. $3,600 net increase in operating income.

The increase in operating income would be additional revenue generated from sale - additional processing costs

= ($16 - $12) x 3000 - $8400

= $3600

There is no need to considered the costs incurred till the split off point.

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