Question

Decision Making #1-Sell or Process Further Joint Product Decision XYZ manufactures A and B from a joint process cost = $70,000. Six thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $21. Ten thousand pounds of B can be sold at split-off for $15 per pound or processed further at an additional cost of $12,000 and later sold for $17.

Required: Which products should be processed further or not? Why? Give the dollar impact to income for each product based on your recommendation. Recommendation:

Decision making #2-Use of Limited Resources-Singe Constraint Bush Manufacturing has 28,000 labor hours available for producing M and N.

Consider the following information:             M        N

Required Labor per unit in hours                 4       2

Maximum demand in units                         8,000    6,000

Contribution Margin per unit                        $8         $7.50

Required: What is the optimal product mix(how many M and N should be produced)? Explain your answer and show computations.

Recommendation:

Answer 1

Solution:- Decision Making 1

Step 1:- Meaning of Joint and By Products:-

(a) Joint Products:-

Joint products are two or more products separated in the course of processing, each having a sufficiently high saleable value to merit recognition as the main product.

• Joint products include products produced as a result of the oil-refining process, for example, petrol and paraffin

(b) By Products:-

By-products are outputs of some value produced incidentally in manufacturing something else (main products).

• By-products, such as sawdust and bark, are secondary products from the timber industry (where timber is the main or principal product from the process).

Step 2) Computation of the dollar impact to income for each product

(1) Joint Process Cost = $ 70000 at the Split Off Point though it is Irrelevant.

Before the furthur processing

Joint Product	Sale Price	Units	Sales Value @ Split Point
A	20	6000	120000
B	15	10000	150000

After Furthur Processing

Joint Product	Sales Price	Units	Sales Value @Split Point	Result Of Futhur Processing
A	21	6000	106000	-14000 WN1
B	17	10000	158000	8000 WN2

WN1) [(Sales Price * No. of Units)- Additional Cost) - Sales value at split off point

= [(21*6000)- 20000] - 120000

= -14000

WN2)  [(Sales Price * No. of Units)- Additional Cost) - Sales value at split off point

= [(17*10000)- 12000] - 150000

= 8000

Step 3:- Conclusion-

Product A should not be processed furthur. The additional costs incurred will not be recouped based on the volume presented in this problem. It will actually create a additional decrease of $14000 in the sales value. Joint Cost is IRRELEVANT COST.

Product B on the other hand should be processed furthur as it will lead to an additional sales revenue of $ 8000.

Solution:- Decision Making 2

Use of Limited Resources- Constraint being only 28000 labour hours available

Particulars	Product M	Product N
Required Labour per unit in hours (A)	4	2
Maximum demand of units (B)	8000	6000
Contribution margin per unit (C)	8	7.5
Contribution margin per labour hour ( C / A) (D)	2	3.75
Ranking (given to more contribution / lh)	2	1
Labour Hours Maximum (A * B) (E)	16000	12000
Units Produced (E / A)	4000	6000

Bush's optimal product mix is 4000 units of M and 6000 units of N. The contribution margin per labour hour is higher for N. and therefore production of N should be maxed out before production of Product M. Product N maxes out at 6000 units, using , 12000 labour hours. This leaves us with 16000 labour hours for producing product M. It takes 4 hours to produce one unit of M, so there is only enough labour hours to produce 4000 units.

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