Question

2. In industries that process joint products, the costs of the raw materials inputs and the sales values of intermediate and final products are often volatile. Change the data area of your worksheet to match the following:

Chapter 12: Applying Excel
Data
Exhibit 12-7 Santa Maria Wool Cooperative
Cost of wool	$210,000
Cost of separation process	$40,000
Sales value of intermediate products at split-off point:
Undyed coarse wool	$127,000
Undyed fine wool	$163,000
Undyed superfine wool	$57,000
Costs of further processing (dyeing) intermediate products:
Undyed coarse wool	$50,000
Undyed fine wool	$60,000
Undyed superfine wool	$10,000
Sales value of end products:
Dyed coarse wool	$165,000
Dyed fine wool	$196,000
Dyed superfine wool	$96,000

If your formulas are correct, you should get the correct answers to the following questions.

a. What is the overall profit if all intermediate products are processed into final products?

b. What is the financial advantage (disadvantage) from further processing

_________ from further processing undyed coarse wool _______

_________ from further processing undyed fine wool ________

_________from further processing undyed superfine wool _______

c-1. With these new costs and selling prices, what recommendations would you make concerning the company’s operations?

Sell as is or process further the intermediate product undyed coarse wool? _______

Sell as is or process further the intermediate product undyed fine wool? ________

Sell as is or process further the intermediate product undyed superfine wool? _________

c-2. If your recommendation in part (c-1) is followed, what would be the company’s overall profit?

Answer 1

Answer a:

Overall profit = $ 87,000

Calculation:

Combined final sales value		$ 457,000
Less: costs of producing the end products:
Cost of wool	$ 210,000
Cost of separation process	$   40,000
Combined costs of dyeing	$ 120,000	$ 370,000
Profit		$   87,000

Answer b:

Financial disadvantage from further processing undyed coarse wool $ 12,000.

Financial disadvantage from further processing undyed fine wool $ 27,000

Financial advantage from further processing undyed superfine wool $ 29,000.

Calculations:

Analysis of sell or process further:	Coarse	Fine	Super fine
Final sales value after further processing	$ 165,000	$ 196,000	$ 96,000
Less sales value at the split-off point	$ 127,000	$ 163,000	$ 57,000
Incremental revenue from further processing	$   38,000	$   33,000	$ 39,000
Less cost of further processing (dyeing)	$   50,000	$   60,000	$ 10,000
Financial advantage (disadvantage) of further processing	$ (12,000)	$ (27,000)	$ 29,000

Answer c-1:

Sell as is

Sell as is

Process further

Answer c-2:

Overall profit = 127,000 + 163,000 + 96,000 (-) 10,000 (-) 210,000 (-) 40,000

= $ 126,000

In case of any doubt, please feel free to comment.