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ID: 2516927 • Letter: H
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Help Save & Exit Subm Required information The following information applies to the questions displayed below General Chemical Company (GCC) manufactures two products as part of a joint process: Al and 81. Joint costs up to the split-off point total $22000. The joint costs are allocated to A1 and 81 in proportion to their relative sales values. At the split-off point, product A1 can be sold for $42,000, whereas product 81 can be sold for $63,000. Product A1 can be processed further to make product A2, at an incremental cost of $38,000. A2 can be sold for $85,000 Product 81 can be processed further to make product 82, at an incremental cost of $48,000 82 can be sold for $95,000 A2 is: The net change in operating income resulting from a decision to manufacture product Multiple Choice 15,000 ficrease $15,000 (decrease Prev 12 f 6Ne MacBook Pro 5 6 8Explanation / Answer
Ans. Total joint cost up to the split-off = $22000
Sale value of A1 = $42000
sale value of B2 = $63000
Total sales value (42000+63000) = 105000
Allocation of joint cost on the basis of sales value
Joint cost for A1= 22000X42/105 = $8800
Joint cost of B1 = 22000X63/105 = $13200
Net profit A1 (42000-8800) =$33200
Net profit B1 (63000-13200)= $49800
Total profit = $83000
Calculation of change of operating profit after further processing
Sales value of A2 = 85000
Less: Additional cost = 38000
Less: Joint cost upto split = 8800
Net profit = 38200
Net operating profit is increase (38200-33200) due to manufacturing A2 is $5000
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