Biotech Pharma Inc., manufactures three therapeutic compounds from a common inpu
ID: 2540097 • Letter: B
Question
Biotech Pharma Inc., manufactures three therapeutic compounds from a common input in a joint processing operation. Joint processing costs up to the split-off point total $100,000 per year. The company allocate these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: compound X, $50,000; compound Y, $90,000; and compound Z, $60,000.
Each compound may be sold at the split-off point as raw material to other pharmaceutical companies or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each compound (on an annual basis) are shown below:
Compound
Additional Processing Costs
Sales Value after Further Processing
X
$35,000
$80,000
Y
$40,000
$150,000
Z
$12,000
$75,000
Required:
Which compound(s) should be sold at the split-off point, and which compound(s) should be processed further? Show computations.
Compound
Additional Processing Costs
Sales Value after Further Processing
X
$35,000
$80,000
Y
$40,000
$150,000
Z
$12,000
$75,000
Explanation / Answer
Prepare incremental analysis :
Compound Y and compound Z should be sold after further processing and Compound X should be sold at split off point.
X Y Z Sale value after further processing 80000 150000 75000 Sale value at split off point 50000 90000 60000 Incremental revenue 30000 60000 15000 Additional processing cost 35000 40000 12000 Incremental profit (5000) 20000 3000Related Questions
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