In a joint processing operation, Nolen Company manufactures three grades of suga

Question

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $92,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. Thae sales values are as follows: raw sugar, $46,000; brown sugar, $50,750; and white sugar, $54,000. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below: Additional Sales Product Processing Costs Value $49,075 Raw sugar Brown sugar $32,550 White sugar $92,000 $ 86,125 $106,000 $32,750 Required a. Compute the Incremental profit (loss) for each product. (Loss amounts should be indicated by a minus sign.) Raw Sugar Brown Sugar White Su b. Which product or products should be sold at the split-off point? (Select all that apply)

Explanation / Answer

a) Particulars Raw Sugar Brown Sugar White Sugar Sales value ( Post Processing) 92000 86125 106000 Less: sales value at Split off point 46000 50750 54000 Incremental Sales revenue 46000 35375 52000 Less: Additional Incremental costs 49075 32550 32750 Incremental Profit/ ( Loss) -3075 2825 19250 b) Since Raw sugar has negative incremental profit,hence raw sugar has to be sold at split off point c) Brown sugar and White Sugar had to be processed further, since there is an incremental profit from the brown sugar and white sugar

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