Solex Company manufactures three products from a common input in a joint process

Question

Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $92,000 per year. 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, $51,000; product Y, $94,000; and product Z, $63,000.

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

Compute the incremental profit (loss) for each product.

Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $92,000 per year. 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, $51,000; product Y, $94,000; and product Z, $63,000.

Explanation / Answer

(a). Incremental profit (loss) for each product will be calculated as follow;

X

Y

Z

Sales vale after further processing

$77000

$160000

$79000

Less: Sales value at split off point

$51000

$94000

$63000

Incremental sales value

$26000

$66000

$16000

Less: Further processing cost

$40000

$40000

$11000

Incremental profit (loss)

($14000)

$26000

$5000

X

Y

Z

Sales vale after further processing

$77000

$160000

$79000

Less: Sales value at split off point

$51000

$94000

$63000

Incremental sales value

$26000

$66000

$16000

Less: Further processing cost

$40000

$40000

$11000

Incremental profit (loss)

($14000)

$26000

$5000

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