Chapter 10 Qulz Question 3 (87) 3. Two products, LB and NH, emerge from a joint
ID: 341735 • Letter: C
Question
Chapter 10 Qulz Question 3 (87) 3. Two products, LB and NH, emerge from a joint process. Product LB has been allocated $32,300 of the total joint costs of $53,000. A total of 2300 units of product LB are produced from the joint process. Product LB can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,700 and then sold for $13 per unit If product LB 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? O $40400 less profit O $5.300 less proft O $24.400 more profit O $27000 more profit O Type here to search F8 F10 6 8 9Explanation / Answer
Profit if LB is sold at the split off point = Sale value at split off - Joint cost allocated
= (Units sold*Sale price at split off) - Joint cost allocated
= (2,700 units*$11) - $32,300
= $29,700 - $32,300 = ($2,600)
If the sale of LB is made at the split off point, then there will be a net loss of $2,600.
If the LB is sold after further processing, then incremental profit/(loss) is calculated as follows:-
Incremental profit (Loss) = Inremental Sale value after further processing - Further processing cost
= [2,700 units*($13-$11)] - $10,700
= (2,700 units*$2) - $10,700
= $5,400 - $10,700 = ($5,300)
Hence if the product is sold after further processing then there will be an incremental loss of $5,300. Therefore the profit will be less by $5,300.
The correct option is b)$5,300 less profit.
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