Two products, IF and RI, emerge from a joint process. Product IF has been alloca

Question

Two products, IF and RI, emerge from a joint process. Product IF has been allocated $12,300 of the total joint costs of $33,000. A total of 1,900 units of product IF are produced from the joint process. Product IF 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 IF is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point?

Two products, IF and RI, emerge from a joint process. Product IF has been allocated $12,300 of the total joint costs of $33,000. A total of 1,900 units of product IF are produced from the joint process. Product IF 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 IF is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point?

Explanation / Answer

IF JOINT COST 12300 NO OF UNITS 1900 SALE PRICE PER UNIT 13 REVENUE AT SPLIT OFF 24700 13*1900 PROFIT AT SPLIT OFF STAGE 12400 24700-12300 ADDITIONAL COST 11000 SALE PRICE PER UNIT 15 REVENUE AFTER PROCESSING 28500 15*1900 PROFIT AFTER PROCESSING 5200 28500-11000-12300 THUS WE CAN SEE THAT PROFIT DECLINES BY 7200 IF THE PRODUCT IS PROCESSED FURTHER. HENCE, IT IS ADVICABLE TO SELL AT SPLIT OFF POINT.

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