Question

WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows: Product X Product Y Product Z Units produced 2,500 3,000 4,000 Per unit sales value at split-off $ 23.00 $ 24.00 $ 25.00 Added processing costs per unit $ 2.00 $ 4.00 $ 4.00 Per unit sales value if processed further $ 27.00 $ 27.00 $ 32.00 The cost of the joint raw material input is $92,000. Which of the products should be processed beyond the split-off point?

Answer 1

Product X and Z should be processed further because the additional sales revenue is greater that further processing cost which leads to a profit.

Product Y should not be processed further because doing so would lead to a loss

Step-by-step explanation:

WP Corporation 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 (i.e $92,000) are irrelevant to the decision to process further .

X Y Z

Sales value at split of point 23 24 25

Sales value after split off point 27 27 32

Additional sales value 4 3 7

Further processing cost ( 2) ( 4 ) ( 4)

Net income?(loss) 2 (1 ) 3

Product X and Z should be processed further because the additional sales revenue is greater that further processing cost, which leads to a profit.

Product Y should not be processed further because doing so would lead to a loss