Solex Company manufactures three products from a common input in a joint process

Question

Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $90,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: product X, $53,000; product Y, $92,000; and product Z, $63,000 Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below: Sales Value after Further Processing Additional ProductProcessing Costs $ 37,000 S 37,000 S 10,000 78,000 159,000 S 81,000 Required a. Compute the incremental profit (loss) for each product. (Loss amounts should be indicated with a minus sign.) Product X Product Y Product Z Incremental profit (loss) b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) Product X Product Y Product Z c. Which product or products should be processed further? (You may select more than one answer Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) Product X Product Y Product

Explanation / Answer

a)

b) Product X should sold at split off point. because net income after further processing decreasing for this product

c) Product Y and Product Z should sold after further processed

X Y Z Sale value at split off point                                                                            53,000                                                                          92,000                                                                       63,000 Less: Joint cost allocated $90,000/$208,000*$53,000 =$22,932.69 $90,000/$208,000*$92,000 = $39,807.69 $90,000/$208,000*$63,000 = $27,259.62 Margin at split off point                                                                      30,067.31                                                                    52,192.31                                                                 35,740.38 Sale value after further process                                                                            78,000                                                                        159,000                                                                       81,000 Less: Joint cost allocated $90,000/$208,000*$53,000 =$22,932.69 $90,000/$208,000*$92,000 = $39,807.69 $90,000/$208,000*$63,000 = $27,259.62 Less: Separable Processing Costs After Split-Off                                                                            37,000                                                                          37,000                                                                       10,000 Margin after further process                                                                      18,067.31                                                                    82,192.31                                                                 43,740.38 Increase or decrease in margin after further process $30,067.31 - $18,067.31 = $12,000 Decrease $52,192.31 - $82,192.31 = $30,000 Increase $35,740.38 - $43,740.38 = $8,000 Increase

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