Question

Q.3 . Products A, B, and C are produced from a single raw material input. The raw  mat-

         erial and other production costs up to the split-off point are $100,000, from which

         10,000 units of Product A, 15,000 units of Product B, and 10,000 units of Product C

         can be produced each period.

         At split-off point, selling prices are as follows:

              - Product A $2 per unit

              - Product B $3 per unit

              - Product C $5 per unit.

        The Company has been offered the following options:

                             Further processing costs totals |                  New  selling prices are :

              -  Product    A        $25,000                       |                   $4.75 per unit

              -  Product    B        $22,500                       |                   $5.00 per unit

              -  Product    C        $25,000                       |                   $8.00 per unit.

1. Determine:Which products should be sold at split-off and which should be processed further.   Show calculations and explain your reasoning. Be Specific!

Selling Price at Split-Off   + [ Incremental Revenue   -  Incremental Cost ]  Net +/-

2.         The company has the option to combine Product A and Product C, at an additional

             cost of  $12,500 to combine both products,  and sell the resulting package  as a

             novelty called “ AC2 Bundle” for $14 per package.

Required: As Management Accountant of this company please recommend :

    Should the company produce and sell the” AC2 Bundle”? What is the minimum     

    price at which the AC2 Bundle should be sold. Show calculations and  explain.

Answer 1

Answer to question

3	Product A sold at split off point and B and C would further produced
		A	B	C	Total
	IF sold at split-off
	Selling price at split off point	$                                 2.00	$            3.00	$            5.00
	Units	10000	15000	10000	35000
	other production costs up to the split-off point	$                      28,571.43	$ 42,857.14	$ 28,571.43	$ 1,00,000.00
	Sales at split off point	$                      20,000.00	$ 45,000.00	$ 50,000.00	$ 1,15,000.00
	Profit at split of point	$                       -8,571.43	$   2,142.86	$ 21,428.57
	If Further processing
	Further processing costs totals	$                      25,000.00	$ 22,500.00	$ 25,000.00	$     72,500.00
	New Selling Price	$                                 4.75	$            5.00	$            8.00
	Sales after further process	$                      47,500.00	$ 75,000.00	$ 80,000.00	$ 2,02,500.00
	Profit after further process	$                       -6,071.43	$   9,642.86	$ 26,428.57

2	if A and C combined and new AC2 Bundle
	Units	10000
	price	$                               14.00
	sales	$                   1,40,000.00
	Cost
	other production costs up to the split-off point	$                      57,142.86
	Further processing costs totals	$                      50,000.00
	Otther cost	$                      12,500.00
	Profit	$                      20,357.14
	Yes the company produce and sell the” AC2 Bundle”
	Minimum Price of AC2 Bundle
	other production costs up to the split-off point	$                      57,142.86
	Further processing costs totals	$                      50,000.00
	Otther cost	$                      12,500.00
	Total cost	$                   1,19,642.86
	Units	10000
	Minimum Price of AC2 Bundle	$                               11.96