Question

Bowen Company makes two products from a joint production
process. Each product may be sold at the split-off point
or processed further. Information concerning these products
for last year appears below:

                                            Product X    Product Y
Allocated joint costs ..................     $25,000      $17,000
Sales value after further processing ...     $41,000      $47,000
Sales value at the split-off point .....     $29,000      $23,000
Additional processing costs ............     $19,000      $15,000

Assume Bowen Company makes all the correct sell or process
further decisions.

Calculate the net income reported by Bowen Company last year.

Answer 1

Net Income Reported By Bowen Company Last Year = $19,000

Solution:

First we calculate the incremental profit or loss from further processing

Particulars	Product X	Product Y
Sales value after further processing	$41,000	$47,000
Less:Sales value at split off point	$29,000	$23,000
Total Incremental Revenue	$12,000	$24.000
Less:Total Incremental Processing costs	$19,000	$15,000
Total Incremental Profit / (loss)	($7,000)	$9,000

Now, as per question we assume that Bowen Company makes all the correct sell or process further decision.

Thus,

Product X will be sold at split off and won't be processed futher as it results in incremental loss of $7,000 &

Product Y will be further processed as it results in incremental profit of $9,000.

So, Net Income Reported by Bowen Company Last Year will be-

Particulars	Product X	Produt Y
Sales Revenue {X at split off & Y after further process}	$29,000	$47,000
Less:Joint Cost	$25,000	$17,000
Less:Incremental Cost	-	$15,000
Income	$4,000	$15,000

Net Income = $4,000 + $15,000 = $19,000