Question

In a joint processing operation, Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $70,000 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: raw sugar, $35,000; brown sugar, $38,250; and white sugar, $46,500.

     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:

Product	Additional Processing Costs			Sales Value
Raw sugar	$	37,025		$	70,000
Brown sugar	$	27,050		$	67,375
White sugar	$	28,750		$	91,000

Required:
a. Compute the Incremental profit (loss) for each product. (Loss amounts should be indicated by a minus sign.)

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. Any boxes left with a question mark will be automatically graded as incorrect.)

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. Any boxes left with a question mark will be automatically graded as incorrect.)

Answer 1

Costs incurred upto solit off point are sunk costs and hence, are not relevant
Product	Sales value after processing	Sales value before processing	Additional Processing costs	Incremental profit = Sales value after processing - Sales value before processing - incremental costs
Raw Sugar	70,000	35,000	37,025	(2,025)
Brown Sugar	67,375	38,250	27,050	2,075
White Sugar	91,000	46,500	28,750	15,750
b.Raw Sugar should be sold at split off point
c.Brown Sugar and White Sugar should be processed further since incremental profit