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 $94,000 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, $47,000, brown sugar, $52,000, and white sugar, $54,750 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 Sales Value 94,000 S 88,000 $107,500 Additional Product Processing Costs Raw sugar $50,180 Brown suga $33,100 White suga S33,150 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 White sugar

Explanation / Answer

Raw sugar should be sold at split off and Brown sugar and White sugar should be processed further

Incremental approach Raw sugar Brown sugar White sugar Sale value at split off     47,000.00       52,000.00       54,750.00 Apportioned joint costs(Joint cost*sales value/total sales) (28,734.96)     (31,791.87)    (33,473.17) Profit at split off     18,265.04       20,208.13       21,276.83 Sale vale after further processing     94,000.00       88,000.00    107,500.00 Further processing costs (50,180.00)     (33,100.00)    (33,150.00) Apportioned joint costs(94,000) (28,734.96)     (31,791.87)    (33,473.17) Profit after further processing     15,085.04       23,108.13       40,876.83 Incremental profit/(loss) for further processing     (3,180.00)         2,900.00       19,600.00

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