Bowen Company makes two products from a joint production process. Each product m

Question

 Bowen Company makes two products from a joint production process. Each product may be sold at the split-off point or processed further and then sold. Information concerning these products for last year is given below:                                                Product X      Product Y Allocated joint costs ....................     $25,000        $19,000 Sales value after further processing .....     $41,000        $47,000 Sales value at the split-off point .......     $28,000        $23,000 Additional processing costs ..............     $16,000        $19,000  Assume that Bowen Company makes all the correct sell or process further decisions.  Calculate the net income reported by Bowen Company last year. 

Explanation / Answer

First let us analyse whether each product will be sold at split off point or further processed:

Now, product x will be sold off without further processing and product y will be further processed.

Net income reported will be:

Product X Product Y Sale value at split off point $28,000 $23,000 Less; allocated joint cost ($25,000) ($19,000) net income if sold at splitoff point $3,000 $4,000 Sale value after further processing $41,000 $47,000 Total cost (joint cost + additional processing cost)(16,000+25,000) (19,000+19,000) (41,000) (38,000) net income if sold after further processing nil 9,000

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