6-A3 Joint Products: Sell or Process Further The Mussina Chemical Company produc

Question

6-A3 Joint Products: Sell or Process Further

The Mussina Chemical Company produced three joint products at a joint cost of $117,000. These products were processed further and sold as follows:

The company has had an opportunity to sell at split-off directly to other processors. If that alternative had been selected, sales would have been A, $54,000; B, $32,000; and C, $54,000.
The company expects to operate at the same level of production and sales in the forthcoming year.

1. Could the company increase operating income by altering its processing decisions? If so, what would be the expected overall operating income?
2. Which products should be processed further and which should be sold at split-off?

Chemical Product Sales Additional Processing Costs A $230,000 $190,000 B $330,000 $300,000 C $175,000 $100,000

Explanation / Answer

solution:

For product-A:

For product-B

For product-C

In case, if the company takes the decision for further processing then total income will be;

= 40000+30000+75000 = $145,000

In case, if the company decides not to further process and sells at splitoff point then total income will be;

= 54000+32000+54000 = $140,000

The company should not alter its processing decision.

Particulars sales at splitoff Processing Difference Sales 54000 230000 176000 Cost after split off 0 (190000) (190000) Net Income 54000 40000 (14000)

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