Narciso Corporation obtains three products from a joint process. The company is

Question

Narciso Corporation obtains three products from a joint process. The company is considering processing some of these products beyond the split-off point and has gathered the following information from its accounting records:

Joint Products:

TOTAL A B C

Sales revenue at split off $1000000 500000 30000 20000

Less: Allocated joint cost 60000 300000 180000 120000

Gross profit at split off point 400000 200000 120000 80000

The company estimates that if the products are processed further beyond the split-off point, the following results will be obtained:

Joint Products:
Total A B C

Sales value after further processing $1,500,000 $700,000 $500,000 $300,000

Additional processing costs 400,000 250,000 100,000 50,000

In order for the company to maximize its gross profit, which of the following product or products should be processed further?

A) A, B and C

B) A and B only

C) B and C only

D) A and C only

Explanation / Answer

C) B and C only Statement showing computations Particulars A B C Sales Revenue at Split off            500,000.00            300,000.00            200,000.00 Sales Revenue after further processing            700,000.00            500,000.00            300,000.00 Incremental Revenue(Sales after Further processing - Sales at Split off)            200,000.00            200,000.00            100,000.00 Additional Processing Costs            250,000.00            100,000.00              50,000.00 Net Incremental Income            (50,000.00)            100,000.00              50,000.00 Should be Processed further No Yes Yes

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