Question

Lumiere Manufacturing Limited produces three products from a single output. Joint processing costs up to the split off point total $350,000. The company allocates these costs based on the sales values at the split off point which are:

            Product D        $240,000

            Product K        $160,000

            Product M       $100,000

Each product can be processed further after the split off point and the following are the costs and sales if they are processed further:

                                                   Additional                        Sales value

                                                Processing costs          after further processing

            Product D                    $63,000                                  $300,000

            Product K                    80,000                                   260,000

            Product M                   36,000                                   128,000

Required:

    Which products should be sold at the split off point and which should be processed further. Explain your answer and show your work.

Answer 1

CONCLUSION DRAWN IS EXTENDED

Particulars	Recommendation
Product - D	Sell the product at split off itself as maximum gain is available at split off only i.e $72,000( $2,40,000- 1,68,000) [sale value at split off less joint cost allocated]
Product -K	Further processing is required
Product-M	Sell the product at split off itself as maximum gain is available at split off only i.e $ 30,000($1,00,000 - 70,000) [sale value at split off less joint cost allocated]