Walters Company produces 15,000 pounds of Product A and 30,000 pounds of Product
ID: 2476375 • Letter: W
Question
Walters Company produces 15,000 pounds of Product A and 30,000 pounds of Product B each week by incurring a joint cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joing product. Data regarding these two products are as follows: Product A Product B Selling price per pound without further processing $12.00 $9.00 Selling price per pound with further processing $15.00 $11.00 Total separate weekly variable costs of further processing $50,000 $45,000 Determine the optimal contribution margin per pound of each product and in total for a week. Why did you handle the joint cost the way you did?
Explanation / Answer
Product A should be sold at seperationa and product B should be processed further.
Product A
Product B
Total
No of units
15000
30000
selling price at seperation
12
9
Total sales value
180000
270000
450000
Joint cost (sales value/total sales value)*400000
160000
240000
400000
Margin at seperation
20000
30000
50000
If processed further
Additional selling price per unit (15-12)(11-9)
3
2
5
No of units
15000
30000
45000
Total sales value
45000
60000
105000
further processsing cost
50000
45000
95000
Margin
-5000
15000
10000
Total margin
15000
45000
60000
Product A
Product B
Total
No of units
15000
30000
selling price at seperation
12
9
Total sales value
180000
270000
450000
Joint cost (sales value/total sales value)*400000
160000
240000
400000
Margin at seperation
20000
30000
50000
If processed further
Additional selling price per unit (15-12)(11-9)
3
2
5
No of units
15000
30000
45000
Total sales value
45000
60000
105000
further processsing cost
50000
45000
95000
Margin
-5000
15000
10000
Total margin
15000
45000
60000
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