In a joint processing operation, Nolen Company manufactures three grades of suga

Question

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $62,000 per year. The company allocates 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: raw sugar, $31,000; brown sugar, $33,250; and white sugar, $43,500.

     Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $62,000 per year. The company allocates 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: raw sugar, $31,000; brown sugar, $33,250; and white sugar, $43,500.

     Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

Additional Product Processing Costs Value 32,603 $24,850 $27,150 Sales Raw sugar Brown sugar White sugar $62,000 $59,875 $85,000 Required: a. Compute the Incremental profit (loss) for each product. (Loss amounts should be indicated by a minus sign.) Raw Sugar Brown Sugar White Sugar Incremental profit (loss) b. Which product or products should be sold at the split-off point? (Select all that apply.) Raw sugar Brown sugar White sugar

Explanation / Answer

Raw Sugar

Brown Sugar

White Sugar

Raw Sugar Brown Sugar White Sugar a) Sales value after further processing 62000 59875 85000 Less: Sales value at the split off point 31000 33250 43500 Incremental revenue from further processing 31000 26625 41500 Less: Further processing costs 32605 24850 27150 Incremental profit(loss) from further processing -1605 1775 14350 b) Which product or products should be sold at the split off point:

Raw Sugar

c) Which product or products should be processed further:

Brown Sugar

White Sugar

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