3. Harold Enterprises,. Inc., processes coconut oil, coconut milk, and edible co

Question

3. Harold Enterprises,. Inc., processes coconut oil, coconut milk, and edible coconut meat from raw coconuts imported from Hawaii. The products can be sold at point of split-off or processed further into high-quality end prod- ucts. Selling price information is shown below. Unit Selling Price If Sold At Split-Off After Additional PointProcesng Coconut oil $4.00/gallon $5.50/galloa Coconut milk... $1.00/gallon $1.20/gallon Coconut mea.51.50/pound $1.95/pound Product There are 150,000 coconuts to be processed and total production for the year 19x6 is expected to be as follows: Product . Quantity Coconut milk....100,000 gallons (25,000 pounds) The cost accounting department estimates that processing costs beyond split-off will be $50,000 for coconut oil, $25,000 for coconut milk, and $20,000 for coconut meat. Budgeted joint processing costs for 19x6 will be $175,000. Determine which product(s) should be sold at split-off point and/or which product(s) should be processed further. Justify your answer.

Explanation / Answer

Prepare incremental analysis :

Coconut oil and coconut meat should be sold after further processing, Coconut milk should be sold at split off point.

Coconut oil Coconut milk Coconum meat Sales value after further processing 5.50 1.20 1.95 Sales value at split off point 4.00 1.00 1.50 Incremental sale revenue per gallon/pound 1.50 0.20 0.45 Quantity 40000 100000 50000 Incremental sales 60000 20000 22500 Less: Incremental cost (50000) (25000) (20000) Incremental profit 10000 (5000) 2500

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