Stahl Inc. produces three separate products from a common process costing $100,0
ID: 2552737 • Letter: S
Question
Stahl Inc. produces three separate products from a common process costing $100,000. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period. Sales Value Cost to Sales Value at Split-off Process after Further Point Further Processing Product 10 $60,000 $100,000 $190,000 Product 12 15,000 30,000 35,000 Product 14 55,000 150,000 215,000 Instructions (a) Determine total net income if all products are sold at the split-off point. (b) Determine total net income if all products are sold after further processing. (c ) Using incremental analysis, determine which products should be sold at the split-off point and which should be processed further. (d) Determine total net income using the results from (c ) and explain why the net income is different from that determined in (b). Stahl Inc. produces three separate products from a common process costing $100,000. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period. Sales Value Cost to Sales Value at Split-off Process after Further Point Further Processing Product 10 $60,000 $100,000 $190,000 Product 12 15,000 30,000 35,000 Product 14 55,000 150,000 215,000 Instructions (a) Determine total net income if all products are sold at the split-off point. (b) Determine total net income if all products are sold after further processing. (c ) Using incremental analysis, determine which products should be sold at the split-off point and which should be processed further. (d) Determine total net income using the results from (c ) and explain why the net income is different from that determined in (b).Explanation / Answer
Ans.(a) Calculation of Total income If all products are sold at split off point : Product 10 Product 12 Product 14 Total Sales value (at split-off) 60,000 15,000 55,000 130,000 Less: Common Processing Cost (W.N.1) 46,154 11,538 42,308 100,000 13,846 3,462 12,692 30,000 Working Note : 1) Calculation of product wise cost at split-off point : Cost Product 10 100,000 x 60,000/130,000 46154 Product 12 100,000 x 15,000/130,000 11538 Product 14 100,000 x 55,000/130,000 42308 Total 100000 Ans.(b) Calculation of Total income If all products are sold after further processing : Product 10 Product 12 Product 14 Total Sales value (after further proc.) 190,000 35,000 215,000 440,000 Less: Common Processing Cost 46,154 11,538 42,308 100,000 Less: Further Processing Cost 100,000 30,000 150,000 280,000 43,846 (6,538) 22,692 60,000 Ans.(c) Calculation of incremental profit for all products : Product 10 Product 12 Product 14 Incremental Revenue (W.N. 1) 130,000 20,000 160,000 Less: Incremental Cost 100,000 30,000 150,000 Increase (Decrease) in profit 30,000 (10,000) 10,000 Working Note : 1) Calculation of incremental revenue : Product 10 Product 12 Product 14 Sales value (after further processing) 190,000 35,000 215,000 Sales value (at split-off) 60,000 15,000 55,000 Incremental Revenue 130,000 20,000 160,000 Ans.(d) Calculation of Net income using the results from (c) : Product 10 Product 12 Product 14 Sales value (at split-off) 60,000 15,000 55,000 Add: Incremental profit 30,000 (10,000) 10,000 Total Net profit 90,000 5,000 65,000 Explanation: 1) Product 1 should be futher processed because the net profit increased by $30,000 2) Product 2 should not be futher processed because the net profit will decreased by $10,000 3) Product 3 should be futher processed because the net profit increased by $10,000
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