Question

Sheffield Inc. produces three separate products from a common process costing $101,000. 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 $60,900 $100,500 $189,100

Product 12 15,200 30,500 34,700

Product 14 54,700 150,900 215,000

Determine total net income using the results from previous part. Net income $ Entry field with incorrect answer Is the net income different from that determined in part (b)? Entry field with correct answer , net income is Entry field with correct answer by $ Entry field with incorrect answer

Answer 1

(A) Determine the Total Net Income if all the products are sold at the split-off point:

	($)	($)
Sales Value
Product 10	60,900
Product 12	15,200
Product 14	54,700	130,800
Less: Cost of goods sold		100,100
Total Net Income		29,800

(B) Determine the Total Net Income if all the products are sold after further processing:

	($)	($)
Sales Value
Product 10	189,100
Product 12	34,700
Product 14	215,000	438,800
Less: Cost of goods sold		101,000
Net Income before further processing		337,800
Less: Cost of further processing
Product 10	100,500
Product 12	30,500
Product 14	150,900	281,900
Net Income after further processing		55,900

(C) Calculate the incremental Profit (loss):

	Product 10	Product 12	Product 14
Sales after further processing	189,100	34,700	215,000
Less: Sales at Split off point	60,900	15,200	54,700
	128,200	19,500	160,300
Less: Cost of process further	100,500	30,500	150,900
Incremental Profit (loss)	27,700	(11,000)	9,400

Product 10	27,700	Can be processed further
Product 12	(11,000)	Should not be processed further
Product 14	9,400	Can be processed further

(D) Determine the Total Net Income using the results from previous parts:

	($)	($)
Sales Value
Product 10	189,100
Product 12	15,200
Product 14	215,000	419,300
Less: Cost of goods sold		101,000
Net Income before further processing		318,300
Less: Cost of further processing
Product 10	100,500
Product 14	150,900	251,400
Net Income after further processing		66,900

Difference in Income:

= 66,900 - 55,900

= 11,000