Nationwide Company manufactures three products from a common input in a joint pr

Question

Nationwide Company manufactures three products from a common input in a joint processing system. Joing processing costs up to the split-off point total $180,000. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: Product X $125,000, Product Y $175,00, Product Z $120,000.

Each product may be sold at the split-off or processed further. Additional processing requires no special equipment of facilities. The additional annual processing costs and sales value after further processing for each product are shown below:

Additional Processing Costs Sales Value
X $45,000 $180,000
Y 60,000 225,000
Z 25,000 150,000

Which product or products should be sold a the split-off point, and which products should be processed further?

a) Products X and Z should be processed further, but not Product X
b) Products X and Z should be processed further, but not Product Y
c) Products X and Y should be processed further, but not Product Z
d) Products X, Y, and Z should be processed further.

Explanation / Answer

Product x has incremental sales value of (180-125= 55) and incremental costs of 45 so it should be processed further. B (225-175=50) Since incremental cost is 60 it should be sold at split off point. C (150-120= 30) Since incremental cost is 25 it should be processed further.

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