Question

Iaci Company makes two products from a common input. Joint processing costs up to the split-off point total $42,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

Product X   Product Y Total

Allocated joint processing costs      22,400       19,600       42,000

Sales value at split off point            32,000         28,000      60,000

Costs of further processing              11,600         25,300      36,900

Sales value after further processing 40,800        54,200      95,000

Required:

1. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off point? Show your work.
2. What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off point? Show your work.
3. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
4. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?

Please Explain. Thank you.

Answer 1

	X	Y	Total
Allocated Joint Processing Costs	22400	19600	42000
Sales Value at splitt off point	32000	28000	60000
Cost of further processing	11600	25300	36900
Sales Value after further processing	40800	54200	95000
Profit before further processing	9600	8400	18000
Profit afer further processing	6800	9300	16100
Advantage Or Disadvantage	-2800	900	-1900
Monetary Disadvantage of processing X further = Profit after further processing - Profit before further processing
6800 - 9600 = 2800 Loss
Monetary Advantage of processing X further = Profit after further processing - Profit before further processing
9300 - 8400 = 900 Benefit
If Sales are to be made at Splitoff point, then the profit should be same as that of after processing benefit.
Sales Price at Splitoff X = 22400+6800 = 29200
Sales Price at Splitoff Y = 19600+9300 = 28900