laci Company makes two products from a common input. Joint processing costs up t
ID: 2599298 • Letter: L
Question
laci Company makes two products from a common input. Joint processing costs up to the split-off point total $50,100 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear belovw: Allocated joint processing costs Sales value at split-off point Costs of further processing Sales value after further processing Product X ProductY Total $19,600 30,500 S 50,100 $24,200 $ 38,200 S 62,400 $24,100 $ 18,400 S 42,500 $47,600 $58,100 S105,700 Required a. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? (Input the amount as a positive value.) Net b. What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off point? (Input the amount as a positive value.) Net c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? Minimum acceptable amountExplanation / Answer
Solution a:
There is loss of $700 to be incurred for processing product X beyond split off point.
Solution b:
There is Net advantage of $1,500 for processing product Y beyond split off point.
Solution c:
Minimum amount that should company accept for Product X if it is to be sold at split off point:
The minimum amount will be the amount that will result in same profit at split off point or further processing of Product X. Therefore minimum net income required is $3,900
Therefore, minimum amount for product X = Allocated Joint Cost + Minimum required income
= $19,600 + $3,900 = $23,500
Solution d:
Minimum amount that should company accept for Product Y if it is to be sold at split off point:
The minimum amount will be the amount that will result in same profit at split off point or further processing of Product Y. Therefore minimum net income required is $9,200
Therefore, minimum amount for product X = Allocated Joint Cost + Minimum required income
= $30,500 + $9,200 = $39,700
Income Analysis - Product X Particulars Sale at Split off Point(Alt 1) Sale after Further Processing
(Alt 2) Differential effect on income (Alt 2) Sales Value $24,200.00 $47,600.00 $23,400.00 Allocated Joint Cost $19,600.00 $19,600.00 $0.00 Further Processing Cost $0.00 $24,100.00 $24,100.00 Net Income $4,600.00 $3,900.00 -$700.00
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