Two products, IF and RI, emerge from a joint process. Product IF has been alloca

Question

Two products, IF and RI, emerge from a joint process. Product IF has been allocated $34,300 of the total joint costs of $55,000. A total of 2,900 units of product IF are produced from the joint process. Product IF can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,900 and then sold for $13 per unit. If product IF is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point?

Explanation / Answer

1)

sale at split - off point

REVENUE = 31900-

ASSIGNED COST = 34300   

PROFIT/ (LOSS) =(-2400)

*)if further processed

REVENUE = 37700-

ASSIGNED COST = 34300

ADDITIONAL COST=10900

PROFIT/ (LOSS) =(-7500)

*) So company should't go for any further processing.

if company go for any further processing they will suffer a loss of 7500. if does't go for further processing the loss will be limited to 2400. thereby company can reduce a loss of 5100 (7500-2400=5100).

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