Joint Costs 4. The Kirsten Company uses a joint process to produce products A, B
ID: 2472067 • Letter: J
Question
Joint Costs
4. The Kirsten Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $65,000. Other relevant data are as follows:
Product
Sales Value
At Split-Off
Additional Costs
of Processing
Sales Value
of Final Product
A
$15,000
$18,000
$ 45,000
B
27,000
15,000
40,000
C
20,000
25,000
30,000
D
13,000
11,000
25,000
$75,000
$69,000
$140,000
Calculate the effect on profits of processing Product A further beyond the split-off point.
Product
Sales Value
At Split-Off
Additional Costs
of Processing
Sales Value
of Final Product
A
$15,000
$18,000
$ 45,000
B
27,000
15,000
40,000
C
20,000
25,000
30,000
D
13,000
11,000
25,000
$75,000
$69,000
$140,000
Explanation / Answer
It is being assumed that the joint cost is allocated on the basis of sales value at split off point.
Joint Cost Allocated to Product A = $65000 * $15000/75000 = $13000
Profit At Splitoff point = Sales Value - Allocated Joint Cost = $15000 - $13000 = $2000
Profit on processing further = Sales Value - Additional Cost - Allocated Joint Cost
= $45000 - $18000 - $13000 = $14000
On processing Product A further, the profit would increase by $12000 ($14000 - $2000)
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