Harris Corp. manufactures three products from a common input in a joint processi
ID: 2445905 • Letter: H
Question
Harris Corp. manufactures three products from a common input in a joint processing operation. Join processing costs up to the split-off point total $200,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. Each product may be sold at the split-off point or processed further. The additional processing costs and sales value after further processing for each product ( on an annual basis)are: The ''Further Processing Costs'' consists of variable and avoidable fixed costs. Which product or products should be sold at the split-off point and which products or products should be processed further? ANSWER AND SHOW WORKExplanation / Answer
This is a question based on decision making regarding buying and selling at split-off point.
It can be answered as below:
1) Calculation of profit at split-off point
Product sales value at split off cost incurred upto split off point Profit at split off point
(joint cost of $ 200,000 allocated in sales value)
J $ 180,000 $ 87,805 $ 92,195
K $ 135,000 $ 65,854 $ 69,146
L $ 95,000 $ 46,341 $ 48,659
Total $ 410,000 $ 200,000 $ 210,000
2) Calulation of profit if these products processed further:
Products Sales value after further process further processing cost Joint cost allocated in sales value
( $ 200,000)
J $ 230,000 $ 60,000 $ 68,656
K $ 280,000 $ 105,000 $ 83,582
L $ 160,000 $ 85,000 $ 47,762
Total $ 670,000 $ 250,000 $ 200,000
Profit after further processing
Product J $ 101,344
Product K $ 91,418
Product L $ 27,238
Total profit $ 220,000
Products J and K should be processed further.
Product L should be sold at split-pff point as it's profit is maximum.
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