EXERCISE 12-6 Sell or Process Further ILO2] In a joint processing operation, Nol

Question

EXERCISE 12-6 Sell or Process Further ILO2] In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $80,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: raw sugar, $40.000: brown sugar. $40,000; and white sugar, $42,000. Each product may be sold at the split-off point or processed further. Additional process ing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below: Sales Processing Costs Value $80,000 $70,000 $82,000 Additional Product Raw sugar Brown sugar White sugar.. $42,000 $28,000 12,000 Required Which product or products should be sold at the split-off point, and which product or prod- ucts should be processed further? Show computations

Explanation / Answer

Raw sugar Brown sugar White sugar Selling price after further processing 80000 70000 82000 Selling price at the split-off point 40000 40000 42000 Incremental revenue 40000 30000 40000 Total incremental processing costs 42000 28000 12000 Total incremental profit or loss -2000 2000 28000 Raw sugar should be sold at the split-off point Brown sugar and White sugar should be processed further

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