A company manufactures three products using the same production process. The cos
ID: 2549250 • Letter: A
Question
A company manufactures three products using the same production process. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows. Product Number of Units Produced Selling Price at Split-Off Selling Price after Processing Additional Processing Costs D 4,000 $10.00 $15.00 $14,000 E 6,000 11.60 16.20 20,000 F 2,000 19.40 22.60 9,000 (b1) Determine the incremental profit (loss) of each product(s)
(b2)
Which product(s) should be processed further and which should be sold at the split-off point?
Explanation / Answer
Product
No. Of units produced
Selling price at split-off
Selling price after processing
Additional processing cost
D
4,000
10
15
14,000
E
6,000
11.60
16.20
20,000
F
2,000
19.40
22.60
9,000
Revenue after further processing
Product D – 60,000 (4,000 units x 15 per unit)
Product E – 97,200 (6,000 units x 16.20 per unit)
Product F – 45,200 (20,000 units x 22.60 per unit)
Revenue at split- off
Product D – 40,000 (4,000 units x 10 per unit)
Product E – 69,600 (6,000 units x 11.60 per unit)
Product F – 38,800 (2,000 units x 19.40 per unit)
Product
D
E
F
Incremental revenue
20,000
27,600
6,400
Incremental cost
(14,000)
(20,000)
(9,000)
Increase (Decrease) in profit
6,000
7,600
(3,400)
B1. Incremental profit (loss)
D - 6,000
E -7,600
F - (3,400)
B2. Product D and E should be processed further
Product
No. Of units produced
Selling price at split-off
Selling price after processing
Additional processing cost
D
4,000
10
15
14,000
E
6,000
11.60
16.20
20,000
F
2,000
19.40
22.60
9,000
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