Question

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $12,300 of the total joint costs of $33,000. A total of 1,900 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $13 per unit, or it can be processed further for an additional total cost of $11,000 and then sold for $15 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

Profit from selling at the split-off point = $13 x 1,900 units = $24,700

Profit from Processing further: = $15 x 1,900 - Processing total cost of $11,000

= $28,500 - $11,000

= $17,500

Comparison

$24,700 - $17,500

=$7,200

There is a decrease in overall profit

Conclusion: If product QI is processed further and sold, then overall profit will decrease by $7,200.