Question

Two products, qi and vh, emerge from a joint process. product qi has been allocated $28,300 of the total joint costs of $49,000. a total of 2,300 units of product qi are produced from the joint process. product qi can be sold at the split-off point for $12 per unit, or it can be processed further for an additional total cost of $10,300 and then sold for $14 per unit. if product qi is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point? multiple choice

O $35,200
O $5,700
O $22,600
O $21,900

Answer 1

Processing product QI further after the split-off point leads to a financial disadvantage of $5,700 compared to selling it right away. It accounts for both the additional costs of processing and the projected increase in selling price. The correct option is $5,700.

Step-by-step explanation:

To answer the student's question, we need to calculate the financial outcome of both selling product QI at the split-off point and after further processing. Selling the product as-is at the split-off would generate total revenues of 2,300 units at $12 each, summing up to $27,600. The allocated joint costs are $28,300, so the net benefit is $27,600 - $28,300 = -$700 (a disadvantage).

If the product QI is processed further, there is an additional cost of $10,300, but the selling price increases to $14 per unit. The total revenue from selling the processed units is 2,300 units at $14 each, which equals $32,200. Deducting the additional processing costs and the allocated joint costs, the net benefit is $32,200 - ($10,300 + $28,300) = -$6,400.

Comparing both scenarios, the financial advantage (or disadvantage) is calculated by subtracting the net benefit of further processing from the net benefit of immediate sale after the split-off: -$6,400 - -$700 = -$5,700. Therefore, processing product QI further results in a financial disadvantage of $5,700 compared to selling it immediately after the split-off. The correct option is $5,700.