Question

1. Company X process materials extracted from mines. The most common raw material that it processes results in three joint products; Product A, Product B and Product C. Each of these products can be sold as is, or each can be processed further and sold for a higher price. The company incurs joint costs of TL180,000 to process one batch of the raw material that produces the three joint products. Company allocates joint costs to products based on tonnage of the product. The following cost and sales information is available for one batch of each product:

Item	Product A	Product B	Product C
Sales Value at Split-Off	270,000	300,000	465,000
Allocated Joint Costs	40,000	60,000	80,000
Costs to Process Further	110,000	83,000	250,000
Sales Value after Process	306,000	400,000	770,000

Determine total net income after deciding which products should be sold at the split-off point and which should be processed further using incremental analysis.

Answer 1

Answer

Total net income = $ 927,000

Calculations:

	Product A	Product B	Product C	Total
Sales (See Note)	$ 270,000	$ 400,000	$ 770,000	$ 1,440,000
Costs to Process Further	---	$   83,000	$ 250,000	$    333,000
Allocated Joint Costs (B)	$   40,000	$   60,000	$   80,000	$    180,000
Net Income	$ 230,000	$ 257,000	$ 440,000	$    927,000

Note:

Item	Product A	Product B	Product C
Sales Value at Split-Off (A)	$                       270,000	$          300,000	$          465,000
Allocated Joint Costs (B)	$                         40,000	$            60,000	$            80,000
Costs to Process Further (C	$                       110,000	$            83,000	$          250,000
Sales Value after Process (D)	$                       306,000	$          400,000	$          770,000
Net Realisable value (D-C = E)	$                       196,000	$          317,000	$          520,000
Decision	Sales Value at Split-Off	Process Further	Process Further

In case of any doubt, please comment.