Question 7 options: XYZ Company makes two products, W and P, in a joint process.
ID: 2425971 • Letter: Q
Question
Question 7 options: XYZ Company makes two products, W and P, in a joint process. At the split-off point, 50,000 units of Product W and 60,000 units of Product P are available each month. Monthly joint production costs total $290,000 and are are allocated to the two products equally. Product W can either be sold at the split-off point for $5.60 per unit or it can be processed further and then sold for $8.80 per unit. If Product W is processed further, additional processing costs of $2.70 per unit will be incurred. Product P can also be sold either at the split-off point for $4.75 per unit or it can be processed further and then sold for $7.30 per unit. If Product P is processed further, additional processing costs of $3.10 per unit will be incurred. However, the further processing of Product P will result in a loss of 5,000 units (i.e., only 55,000 units of Product P will be available for sale if it is processed further). The further processing of Product W will not result in the loss of any units. Assume XYZ Company makes all the correct sell or process further decisions. Calculate the amount of net income reported by XYZ Company last month. Do not use decimals in your answer.
Explanation / Answer
Calculation of profit at the split off point and after further processing for both the products:
S.NO
Particulars
Product W
Product P
At Split off point
After further processing
At Split off point
After further processing
1
Sales
280000
(5.60 * 50000)
440000
(8.80 * 50000)
285000
(4.75 * 60000)
401500
(7.30 * 55000)
2
Less: Joint Costs
(290000 / 2)
145000
145000
145000
145000
3
Profit at split off point (1-2)
135000
140000
4
Further Costs
135000
(2.70 * 50000)
186000
(3.10 * 60000)
5
Profit after further processing (1-2-4)
160000
70500
For Product W, profit after further processing is higher and for product P, profit at the split off point is higher.
Net Profit to be reported by the company = Profit of Product W + Profit of Product P
= $160000 + $140000
= $300000
Net Product to be reported = $300000
S.NO
Particulars
Product W
Product P
At Split off point
After further processing
At Split off point
After further processing
1
Sales
280000
(5.60 * 50000)
440000
(8.80 * 50000)
285000
(4.75 * 60000)
401500
(7.30 * 55000)
2
Less: Joint Costs
(290000 / 2)
145000
145000
145000
145000
3
Profit at split off point (1-2)
135000
140000
4
Further Costs
135000
(2.70 * 50000)
186000
(3.10 * 60000)
5
Profit after further processing (1-2-4)
160000
70500
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