Question

Gusler company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $98,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:

Product Selling Price Quarterly Output
A $ 4 per pound 10,000 pounds
B $ 6 per pound 22,000 pounds
C $ 12 per gallon 5,000 gallons

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

Product Additional Processing Costs Selling Price
A. $ 53,000 $ 6 per pound
B. $ 38,000 $ 13 per pound
C $ 18.000 $ 19 per gallon

Which products should be processed further?

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Particular After further processing subtract At the split-off

selling price per pound selling price Increment revenue

Product A $6 - $4 $2

Product B $13 - $6 $7

Product C $19 - $12 $7

Now

Increment revenue Total Total increment Total increment

quarterly output revenue processing cost Increment profit/ loss

$2 10,000 pounds $20,000 $53,000 -$33,000

$7 22,000 pounds $154,000 $38,000 $116,000

$7 5,000 gallons $35,000 $18,000 $17,000

According to the analysis, Product (B) and (C) shows profit increment after further processing so they should be processed further.