Brittany Furniture manufactures two products, pillows and cushions, from a joint

ID: 2549582 • Letter: B

Question

Brittany Furniture manufactures two products, pillows and cushions, from a joint process. Pillows are allocated $ 7,100 of the total joint costs of $ 28,000. There are 3,000 pillows produced and 3,000 cushions produced each year. Pillows can be sold at the split-off point for $ 13 per unit, or they can be processed further into a deluxe pillow for additional processing costs of $ 8,300 and sold for $ 21 for each deluxe pillow. If the pillows are processed further and made into deluxe pillows, the effect on operating income would be

Explanation / Answer

Solution:

Selling price ( 3000 * $21)

63,000

Minus: Additional cost of processing

8,300

Profit

54,700

Minus: Split off point sale (3000*$13)

36,000

Net increase in profit

18,700