Company produces three joint products. At the split offpoint three basic prodcut
ID: 2433567 • Letter: C
Question
Company produces three joint products. At the split offpoint three basic prodcuts emerge A,B, and C. each productcan be either sold at the split off point or be processedfurther. if they are processed further, the reultingproducts can be sold as a speciality. Cost and revenue infofollows: Sales Value & Additional Costsif Processed Further Pounds Sales Value FinalSales Additonal Product produced atsplit-off value cost A......................................9,000 $60,000 $90,000 $35,000 B......................................4,000 80,000 160,000 50,000 C.......................................2,000 70,000 85,000 14,000 ** Which product should the company process beyond the splitoff point? Company produces three joint products. At the split offpoint three basic prodcuts emerge A,B, and C. each productcan be either sold at the split off point or be processedfurther. if they are processed further, the reultingproducts can be sold as a speciality. Cost and revenue infofollows: Sales Value & Additional Costsif Processed Further Pounds Sales Value FinalSales Additonal Product produced atsplit-off value cost A......................................9,000 $60,000 $90,000 $35,000 B......................................4,000 80,000 160,000 50,000 C.......................................2,000 70,000 85,000 14,000 ** Which product should the company process beyond the splitoff point?Explanation / Answer
Incremental analysis of a decision to process further:-
A
$
Revenue after further process
Less: Revenue at split-off point
Incremental revenue
Less: Incremental cost to process further
90000
60000
-----------
30000
35000
Net increase (decrease) in operating income
(5000)
B
$
Revenue after further process
Less: Revenue at split-off point
Incremental revenue
Less: Incremental cost to process further
160000
80000
-----------
80000
50000
Net increase (decrease) in operating income
30000
C
$
Revenue after further process
Less: Revenue at split-off point
Incremental revenue
Less: Incremental cost to process further
85000
70000
-----------
15000
14000
Net increase (decrease) in operating income
1000
Operating income after furtherprocess is higher to B and C so these products should be furtherprocessed by the company.
A
$
Revenue after further process
Less: Revenue at split-off point
Incremental revenue
Less: Incremental cost to process further
90000
60000
-----------
30000
35000
Net increase (decrease) in operating income
(5000)
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