Iaci Company makes two products from a common input. Joint processing costs up t

Question

Iaci Company makes two products from a common input. Joint processing costs up to the split-off point total $42,000 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: Product X Product Y Total Allocated joint processing costs $22,400 $19,600 $42,000 Sales value at split-off point $32,000 $28,000 $60,000 Costs of further processing $11,600 $25,300 $36,900 Sales value after further processing $44,800 $53,200 $98,000 Required: (a) What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? (b) What is the net monetary 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?

Explanation / Answer

Laci Company Details Prodcut X Prodcut Y Total d Sales Value at Split Off point                      32,000             28,000                 60,000 Allocated Joint Processing Cost                      22,400             19,600                 42,000 a Profit At Split Off point Sale                        9,600               8,400           18,000.00 Further Processing cost                      11,600             25,300           36,900.00 Total Processing Cost involved in further processing after split off                      34,000             44,900                 78,900 Sales Value After Further Processing                      44,800             53,200                 98,000 b Profit on Selling on further Processing after split off point                      10,800               8,300                 19,100 Ans A&B. c Net monetary advantage / (dsadvantage) of processing after split off point=b-a= $                    1,200 $            (100) $               1,100 Ans C&D. MinimumAmount to be accepted for selling at split off point =d+c $                 33,200 $        27,900 $             61,100

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