27 Pendall Company manufactures products Dee and Eff from a joint process. Produ
ID: 2654148 • Letter: 2
Question
27
Pendall Company manufactures products Dee and Eff from a joint process. Product Dee has been allocated $2,500 of the $20,000 n total joint costs associated with the production of 1.000 units each of Dee and Eff each year. Dee can be sold at the split-off point for $3 per unit, or it can be processed further with additional costs of $1,000 and sold for $5 per unit. If Dee is processed further and sold, the result would be: A break-even situation. An additional gain of $1,000 from further processing. A loss of $1,000 from further processing. An additional gain of $2,000 from further processing.Explanation / Answer
It is a problem on joint prduct. Sometimes in process industry, one process generates more than one products of equal importance. They are known as joint product. In this problem, the process has generated two product Dee and Eff.
Cost incurred upto split off point is known as joint cost. It is distributed among products on some reasonable basis. Here joint cost has been distributed among Dee and EFF. The share of joint cost for Dee is $2,500.
Total 1,000 units of Dee has been manufactured. At this split off stage, it can be sold at $3 per unit. Therefore, total sale value is $3 x 1,000 = $3,000.
If Dee is sold at this stage then it can earn a profit of $3,000-$2,500 =$500.
Now you can proces it further. In that case you have to incur extracost of $1,000. After such processing it can be sold at $5 per unit. Therefore, incremental sale value per unit is $5-$3=$2. So extra revenue from 1,00 units of Dee sold is 1,000 x $2 =$2,0000. Deduct post split off cost $1,000. Balance net incremental profit is $2,000-$1,000=$1,000.
So you can conclude that furher processing of product Dee will give an additional gain of $1,000.
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