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

Decision: XYZ should sell product A at split-off and process product B further and sell it after further processing (Refer to note 1 below)

Note 1: Decision of sale at split-off or after further processing

Product	Product –A	Product-B
Quantity at Split-off	6,000 pounds	10,000 pounds
Selling Price at Split-off point	$ 20	$ 15
Sales Revenue	$ 1,20,000	$ 1,50,000
Quantity if processed further	6,000 pounds	10,000 pounds
Selling price after processing	$ 21	$ 17
Sales Revenue	$ 1,26,000	$ 1,70,000
Incremental Revenue	$ 6,000	$ 20,000
Incremental Costs	($ 20,000)	($ 12,000)
Profit/( Loss)	($ 14,000)	$ 8,000
DECISION	Sale at Split-Off Point	Process Further

As a result of this decision the dollar impact on the income is an increase of $ 2,08000( see Note 2)

Note 2: Increase in income as a result of the recommendation

Sales Revenue –Product A $ 1,20,000

Sales Revenue –Product B $1,58,000( $ 170,000-$12,000)

Total sales Revenue           $ 2,78,000

Less: Joint Costs ($ 70,000)

Net Income                         $ 2,08,000