Shynee Minerals processes materials extracted from mines. The most common raw ma

Question

Shynee Minerals processes materials extracted from mines. The most common raw material that it processes results in three joint products: Sarco, Barco, and Larco. Each of these products can be sold as is, or it can be processed further and sold for a higher price. The company incurs joint costs of $180,000 to process one batch of the raw material that produces the three joint products. The following cost and sales information is available for one batch of each product.
Sales Value at Split-off Point Allocated Joint Costs Cost to Process Further Sales Value of Processed Product
Sarco $200,000 $40,000 $120,000 $300,000
Barco 300,000 60,000 89,000 400,000
Larco 400,000 80,000 250,000 800,000

Determine whether each of the three joint products should be sold as is, or processed further

Explanation / Answer

In computing incremental profit/loss, joint costs are disregarded because these are incurred regardless of whether the products are sold as is or processed further. SARCO - Sell as is. Sell as is: $200,000 Process further: $300,000 - $120,000 = $180,000 Incremental loss: $20,000 BARCO - Process further. Sell as is: $300,000 Process further: $400,000 - $89,000 = $311,000 Incremental profit: $11,000 LARCO - Process further. Sell as is: $400,000 Process further: $800,000 - $250,000 = $550,000 Incremental profit: $150,000

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