Question

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $28,300 of the total joint costs of $49,000. A total of 2,300 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $12 per unit, or it can be processed further for an additional total cost of $10,300 and then sold for $14 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

Gain from selling at the split-off point = $12 * 2,300

Gain from selling at the split-off point = $27,600

Gain from Processing further = $14 * 2,300 - Processing cost ($10,300)

Gain from Processing further = $ 32,200 - $10,300

Gain from Processing further = $21,900

Overall profit

= $27,600 - $21,900

= $5,700 (Decrease in overall profit )

Hence, if product QI is processed further and sold, then overall profit will be decreased by $5,700