Question

In: Accounting

Exercise 7-10 (Video) Stahl Inc. produces three separate products from a common process costing $100,900. Each...

Exercise 7-10 (Video)

Stahl Inc. produces three separate products from a common process costing $100,900. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.
Sales Value
at Split-Off
Point
Cost to
Process
Further
Sales Value
after Further
Processing
Product 10 $59,300 $100,400 $189,600
Product 12 15,900 29,100 34,800
Product 14 54,500 149,900 214,400
Determine total net income if all products are sold at the split-off point.
Net income $

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Determine total net income if all products are sold after further processing.
Net income $

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Calculate incremental profit/(loss) and determine which products should be sold at the split-off point and which should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Product Incremental profit (loss) Decision
Product 10 $

Should be sold at the split-off pointShould be processed further

Product 12 $

Should be sold at the split-off pointShould be processed further

Product 14 $

Should be sold at the split-off pointShould be processed further

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Determine total net income using the results from previous part.
Net income $

Is the net income different from that determined in part (b)?

NoYes

, net income is

higherlower

by $

Solutions

Expert Solution

a) The total net income if all products are sold at the split-off point :

= Total Sales Value at Split-Off Point (-) Commom Process Cost

= $129,700 (-) $100,900 = $28,800.

b) The total net income if all products are sold after further processing.:

= Total Sales Value after Further Processing (-) Cost to Process Further (-) Commom Process Cost

= $438,800 (-) $279,400 (-) $100,900

= $58,500.

c) Split the common process cost of $100,900 in the ratio of Sales Value at Split-Off Point. The allocated cost of each product will be :

Product Allocated Common Process Cost Allocated Profit at Split-Off Point Profit (loss) after further processing
Product10 $46,132 $13,167 $43,068
Product12 $ 12,369 $3,531 ($6,669)
Product14 $42,399 $12,102 $22,101
Product

Incremental profit (loss)

[Profit (loss) after further processing (-) Allocated Profit at Split-Off Point]

Decision
Product10 $29,901 Should be processed further.
Product12 ($3,138) Should be sold at the split-off point.
Product14 $9,999 Should be processed further.

d) Total net income using the results from part (c)

= $43,068 (+) $3,531 (+) $22,101

= $68,700.

e) Yes, net income in part (d) is different from part (b).

f) Net income is higher in part (d) compared to part (b).


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