Ibsen Company makes two products from a common input. Joint processing costs up

Question

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $48,500 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

Required:

a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)

b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? (Negative amount should be indicated by a minus sign.)

Product X Product Y Total Allocated joint processing costs $ 18,700 $ 29,800 $ 48,500 Sales value at split-off point $ 25,800 $ 37,750 $ 63,550 Costs of further processing $ 23,200 $ 17,500 $ 40,700 Sales value after further processing $ 48,600 $ 56,300 $ 104,900

Explanation / Answer

a) Calculate financial advantage (disadvantage of processing product X beyond the splif off point :

Financial (disadvantage) of processing product X beyond the split off point is -400

b) Calculate financial advantage (disadvantage of processing product Y beyond the splif off point :

Financial advantage of processing product Y beyond the split off point is 1050

Sale value after further processing 48600 Sale value at split off point 25800 Incremental sale revenue 22800 Incremental cost -23200 Incremental profit (loss) -400

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