Walman Corp. manufactures products X, Y, and Z from a joint production process.

Question

Walman Corp. manufactures products X, Y, and Z from a joint production process. Joint costs are allocated to products on the basis of relative sales value at the split-off point. Additional information is as follows:XYZTotalUnits produced14,00010,0006,00030,000Joint costs$204,000$90,000$66,000$360,000Sales value at split-off?150,000110,000600,000Additional costs forfurther processing38,00030,00022,00090,000Sales value ifprocessed further348,000185,000147,000680,000Based solely on a relevant cost analysis, which of the three products should be manufactured by Walman beyond the split-off point?

Explanation / Answer

X Y Z Total Units produced 14000 10000 6000 30000 Joint costs 204000 90000 66000 360000 (a) Sale value at split-off 150000 110000 600000 Additional costs of further processing 38000 30000 22000 90000 (b) Sale value after further processing 348000 185000 147000 680000 Product to be manufactured after split-off point Incremental sale value after further processing(less) Additional further costs of further processing c = b-a Incremental sale value after further processing 198000 75000 -453000 Incremental costs for further processing 38000 30000 22000 Incremental revenue 160000 45000 -475000 Since product X and Y generate positive incremental revenue after further processing, Product X and Y must be manufactured and Product Z must be left alone without processing

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