Ibsen Company makes two products from a common input. Joint processing costs up
ID: 2410818 • Letter: I
Question
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $43,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:
Required:
a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)
b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?
c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?
Product X Product Y Total Allocated joint processing costs $ 25,800 $ 17,200 $ 43,000 Sales value at split-off point $ 30,000 $ 20,000 $ 50,000 Costs of further processing $ 23,800 $ 18,100 $ 41,900 Sales value after further processing $ 47,000 $ 57,500 $ 104,500Explanation / Answer
Ibsen Company Product Product X Product Y Sales Value after further processing $ 47,000.00 $ 57,500.00 Sales value at split off point $ 30,000.00 $ 20,000.00 Sales Increase $ 17,000.00 $ 37,500.00 Cost after further processing $ 23,800.00 $ 18,100.00 Financial Advantage/Disadvantage $ (6,800.00) $ 19,400.00 Product Product X Product Y Sales Value after further Processing $ 47,000.00 $ 57,500.00 Cost of further processing $ 23,800.00 $ 18,100.00 Benefit of further processing $ 23,200.00 $ 39,400.00 Minumum selling price at split off point $ 23,200.00 $ 39,400.00
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