Question

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $21,300 of the total joint costs of $42,000. A total of 2,800 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 $10,800 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

Processing QI further would lead to a loss of ($5,200)

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 cost incurred up to the split-off point are irrelevant to the decision to process further .

Financial disadvantage of processing QI further

$

Sales revenue after the split-off point (13× 2,800) 36,400

Sales revenue at the split-off point (11× 2,800) (30,800)

Additional sales revenue 5,600

Further processing cost ( 10,800)

Net advantage from further processing 1,200 (5,200)

Processing QI further would lead to a financial disadvantage of ($5,200)