Stahl Inc. produces three separate products from a common process costing $101,0

Question

Stahl Inc. produces three separate products from a common process costing $101,000. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.

Determine total net income if all products are sold at the split-off point.
Net income $_______________________________________

Sales Value
at Split-Off
Point Cost to
Process
Further    Sales Value
after Further
Processing Product 10 $60,900 $100,500 $189,100 Product 12 15,200 30,500 34,700 Product 14 54,700 150,900 215,000

Explanation / Answer

Split off point is a point where the business takes a decision as to whether to sell the products or process them further so as to make greater returns .

Conversely, at split off point a business makes a decision of “SELL OR PROCESS FURTHER”

Before the split off points ,all the costs are jointly associated with all the products manufactured in a single process.

However ,after the split off point , costs are apportioned to various products and hence products become individually identifiable.

In the above situation,joint cost before the split off point=101,000

Now , we will calculate the total sales value of product 10,12,14 at split off point=60,900+15,200+54,700=-29800

Net income=-29800

Hence ,business is making loss at split off point.

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