Question

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $16,300 of the total joint costs of $37,000. 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 $11 per unit, or it can be processed further for an additional total cost of $10,300 and then sold for $13 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

Answer 1

Net profit will be reduced by $5,700

Step-by-step explanation:

The computation of financial advantage (disadvantage) is shown below:-

Gain from selling at the split-off point = Sold split-off point × Total units

= $11 × 2,300

= $25,300

Gain from Processing further = Sold units × Total units - Processing cost

= $13 × 2,300 - $10,300

= $29,900 - $10,300

= $19,600

Decrease in overall profit = Gain from selling at the split-off point - Gain from Processing further

= $25,300 - $19,600

= $5,700

Therefore, if commodity QI is further processed and sold, then net profit will be reduced by $5,700