Questions
Iaci Company makes two products from a common input. Joint processing costs up to the split-off point total $42,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Product X Product Y Total Allocated joint processing costs $22,400 $19,600 $42,000 Sales value at split-off point $32,000 $28,000 $60,000 Costs of further processing $11,600 $25,300 $36,900 Sales value after further processing $44,800 $53,200 $98,000 Required: (a) What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point?
Answer:
Net advantage from further processing $1,200
Step-by-step explanation:
A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.
Also note that all the joint costs incurred up to the split-off point are irrelevant to the decision to process further any of the .
Net monetary advantage of product X
$
Sales revenue after the split-off point 44,800
Sales revenue at the split-off point (32,000)
Additional sales revenue 12,800
Further processing cost (11,600)
Net advantage from further processing 1,200
Net advantage from further processing $1,200