Chen minerals processes materials extracted from mines. The most common raw mate

Question

Chen minerals processes materials extracted from mines. The most common raw material that it processes results in three joint products: Larco, Marco and Narco. Each of these materials can be sold as is, or processed further and sold for a higher price. The company incurs joint costs of 180,000$ to process one batch of the raw material that produces the three products. The following cost and sales information available for one batch of each product

Sales value at Split-Off point

Determine whether each of the three joint products should be sold as is or processed further

Sales value at Split-Off point

Allocated Joint Costs Cost to Process Further Sales Value of Processed Product Larco $200,000 $40,000 $100,000 330,000 Marco 300,000 60,000 125,000 400,000 Narco 400,000 80,000 150,000 600,000

Explanation / Answer

Incremental analysis :

Larco and narco should be processed further

March should be sold as is

Larco Marco Narco Sale value after processed further 330000 400000 600000 Sale value at split off point 200000 300000 400000 Incremental sales revenue 130000 100000 200000 Incremental cost -100000 -125000 -150000 Incremental profit (loss) 30000 -25000 50000

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