Question

Gusler company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $98,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:
Product			Selling Price								Quarterly Output
A			$		3			per pound				10,000	pounds
B			$		6			per pound				22,000	pounds
C			$		11			per gallon				5,000	gallons
Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:
Product	Additional Processing Costs					Selling Price
A	$	53,000				$	6		per pound
B	$	38,000				$	12		per pound
C	$	18,000				$	19		per gallon

Which products should be processed further?

Multiple Choice

• A and B

• A and C

• B and C

• A, B, and C

Answer 1

Product B and C should be processed further.

Since there is a financial disadvantage in further processing of Product A, hence only product B and C should be processed further only.

Workings:-

Particulars	A	B	C	Total
Units (A)	10000	22000	5000
Selling price p.u. (B)	3	6	11
Sales value (A*B=C)	30000.00	24000.00	22000.00	76000.00
Joint cost allocation	38684.21	30947.37	28368.42	98000.00

Product A	Amt. in $
Particulars	If sold at split off point	If sold after further processing
Units (A)	10000	10000
Selling price p.u. (B)	3	6
Sales value (A*B=C)	30000.00	60000.00
Joint processing cost as allocated (D)	38684.21	38684.21
Further processing cost (E )	-	53000.00
Net profit (C-D-E)	-8684.21	-31684.21
Financial advantage/ (disadvantage) in further processing		-23000.00
Product B	Amt. in $
Particulars	If sold at split off point	If sold after further processing
Units (A)	22000	22000
Selling price p.u. (B)	6	12
Sales value (A*B=C)	132000.00	264000.00
Joint processing cost as allocated (D)	30947.37	30947.37
Further processing cost (E )	-	38000.00
Net profit (C-D-E)	101052.63	195052.63
Financial advantage/ (disadvantage) in further processing		94000.00
Product C	Amt. in $
Particulars	If sold at split off point	If sold after further processing
Units (A)	5000	5000
Selling price p.u. (B)	11	19
Sales value (A*B=C)	55000.00	95000.00
Joint processing cost as allocated (D)	28368.42	28368.42
Further processing cost (E )	0.00	18000.00
Net profit (C-D-E)	26631.58	48631.58
Financial advantage/ (disadvantage) in further processing		22000.00