Exercise 21-12 A company manufactures three products using the same production p

Question

Exercise 21-12

A company manufactures three products using the same production process. The costs incurred up to the split-off point are $203,500. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows.

(b1)

Determine the incremental profit (loss) of each product(s). (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

(b2)

Which product(s) should be processed further and which should be sold at the split-off point?

Product Number of
Units Produced Selling Price
at Split-Off Selling Price
after Processing Additional
Processing Costs D 4,570 $10.34 $15.32 $16,658 E 5,930 11.31 16.57 23,512 F 1,770 19.84 22.74 8,533

Explanation / Answer

b1.Please find the detailed answer as follows:

b1.Please find the detailed answer as follows:

Product Number of Selling Price Selling Price Additional Incremental Profit Units Produced at Split-Off after Processing Processing Costs Calculation D 4570 10.34 15.32 16658 4570*(15.32)-16658-(4570*10.34) 6100.6 E 5930 11.31 16.57 23512 (5930*16.57)-23512-5930*11.31 7679.8 F 1770 19.84 22.74 8533 1770*22.74-8533-1770*19.84 -3400 D E F Incremental Profit (Loss) 6100.6 7679.8 -3400 Notes: Incremental Profit = Units*(Selling Price after Processing) - Additional Processing Costs - Units*Selling Price at Split-Off

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