Question

WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows:

	Product X		Product Y		Product Z
Units produced		1,900		2,400		3,400
Per unit sales value at split-off	$	17.00	$	21.00	$	19.00
Added processing costs per unit	$	2.00	$	4.00	$	4.00
Per unit sales value if processed further	$	22.00	$	22.00	$	27.00

The cost of the joint raw material input is $72,000. Which of the products should be processed beyond the split-off point?

	Product X	Product Y	Product Z
A)	yes	yes	no
B)	yes	no	yes
C)	no	yes	no
D)	no	yes	yes

Answer 1

		Product X	Product Y	Product Z
	Units produced	1,900	2,400	3,400
	Per unit sales value at split-off	17	21	19
	Sale value at Split off Point	32,300	50,400	64,600
	Less: Allocated Joint Cost in the ratio of sales value at split off point	15,788	24,635	31,577
		(72,000 x 32,300 / 147,300 )	(72,000 x 50,400 / 147,300 )	(72,000 x 64,600 / 147,300 )
	Profit at split off point -B $	16,512	25,765	33,023
		Product X	Product Y	Product Z
	Units produced	1,900	2,400	3,400
	Per unit sales value if processed further	22	22	27
	Sale value after further processing	41,800	52,800	91,800
	Less: Allocated Joint Cost	15,788	24,635	31,577
	Less: further Processing cost	3,800	9,600	13,600
	Profit after further processing -A $	22,212	18,565	46,623
		Product X	Product Y	Product Z
	Incremental Profit on Further processing $	5,700	-7,200	13,600
	(A -B )

Its is better to process further Product X & Product Z.

Correct answer is option B. ( Product X - Yes, Product Y - No, Product Z - Yes ).