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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

ekkarill92 answered 1 year ago

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