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			$		4			per pound				10,000	pounds
B			$		6			per pound				22,000	pounds
C			$		12			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				$	7		per pound
B	$	38,000				$	12		per pound
C	$	18,000				$	19		per gallon

Which products should be processed further?

Answer 1

Product	Selling price	Quarterly output	Sales Value at split-off point
A	$4.00 per pound	10,000 pounds	$                          40,000
B	$6.00 per pound	22,000 pounds	$                       1,32,000
C	$12.00 per gallon	5,000 gallons	$                          60,000
	Total		$                       2,32,000
	Allocation of Joint Processing Costs:
	Product A - $98,000*$40,000/$232,000 =$16,896
	Product B - $98,000*$132,000/$232,000 =$55,759
	Product C - $98,000*$60,000/$232,000 =$25,345
	Statement Showing Financial advantage/(disadvantage)
		Product A	Product B	Product C
	Sales Value at split off point	$                              40,000	$                       1,32,000	$                   60,000
	Less:Joint processing costs	$                              16,896	$                          55,759	$                   25,345
	Margin at Split-off point	$                              23,104	$                          76,241	$                   34,655
	Sales value after further processing	$                              70,000	$                       2,64,000	$                   95,000
	Less:Joint processing costs	$                              16,896	$                          55,759	$                   25,345
	Less:Additional processing costs	$                              53,000	$                          38,000	$                   18,000
	Margin after further processing	$                                   104	$                       1,70,241	$                   51,655
	Financial advantage/(disadvantage)	$                             -23,000	$                          94,000	$                   17,000
	Sell at split-off point	Product A
	Process further		Product B	Product C