Question
In: Accounting
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off...
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $50,500 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 | $ | 30,300 | $ | 20,200 | $ | 50,500 | ||||
| Sales value at split-off point | $ | 30,000 | $ | 20,000 | $ | 50,000 | ||||
| Costs of further processing | $ | 23,400 | $ | 17,700 | $ | 41,100 | ||||
| Sales value after further processing | $ | 49,000 | $ | 56,700 | $ | 105,700 | ||||
Required:
a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.)
b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?
c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?
Solutions
Expert Solution
Solution
Ibsen Company
- Determination of financial advantage (disadvantage) of processing Product X beyond the split-off point:
Sales value after further processing = $49,000
Sales value at split-off= $30,000
Incremental earnings = $19,000
Incremental costs (further processing costs) = $23,400
Incremental profit/(loss) = $19,000 - $23,400 = ($4,400)
Hence, processing Product X beyond the split-off point would result in a financial disadvantage of $4,400.
- Determination of the financial advantage (disadvantage) of processing Product Y beyond the split-off point:
Sales value after further processing = $56,700
Sales value at split-off= $20,000
Incremental earnings = $36,700
Incremental costs (further processing costs) = $17,700
Incremental profit/(loss) = $36,700 - $17,700 = $19,000
Hence, processing Product Y beyond the split-off point would result in a financial advantage of $19,000.
- Determination of the minimum amount the company should accept for Product X if it is to be sold at the split-off point:
Sale value after further processing = $49,000
Costs of further processing = $23,400
Minimum acceptable sales value = 49,000- 23,400 = $25,600
- Determination of the minimum amount the company should accept for Product Y if it is to be sold at the split-off point:
Sales value after further processing = $56,700
Costs of further processing = $17,700
Minimum acceptable sales value = $39,000
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