Company manufactures three products using the same production process. The costs

Question

Company manufactures three products using the same production process. The costs incurred up to the split-off point arc $200,000. These costs are allocated to the products on the basis of their sales value at thagspttt-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows. Which product(s) should be processed further and which should be sold at the split off point?

Explanation / Answer

From the above computation table, it is seen that profit for product X & Y are increased by $5,949 & $24,762 respectively, whereas profit foir product Z is decreased, due to processing after split off.

Recommendation: Considering the above, product X & product Y can be sold after after processing & product Z can be sold at Split off without further processing.   

Product X Y Z Total ($) a Number of units produced number              5,000         10,000        4,000 b Selling price at Split off $ per unit 10.00 11.60 19.40 c Total selling value at Split off $(axb)            50,000       116,000      77,600         243,600 d Allocation of joint cost $(200,000/243600) x c            41,051         95,238      63,711         200,000 e Profit if product sold at Split off without processing $(c - d)              8,949         20,762      13,889            43,600 f Processing cost after split off $ Given            14,000         21,000      12,000            47,000 g Total cost (Upto split off + furter process) $(d + f)            55,051       116,238      75,711         247,000 h Selling price after processing $ per unit 15.00 16.20 21.60 i Total Selling value per product $(b x f)            75,000       162,000      86,400         323,400 j Profit if product sold after further processing $(i - g)            19,949         45,762      10,689            76,400 k Change in profit, if further processed after split off $(j-e)              5,949         24,762      (1,311)            29,400

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