Question

Exercise 20-10 (Part Level Submission)

Stahl Inc. produces three separate products from a common process costing $100,900. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.

Sales Value
at Split-Off
Point Cost to
Process
Further Sales Value
after Further
Processing
Product 10 $59,800 $100,900 $190,300
Product 12 15,300 29,000 34,800
Product 14 56,000 149,900 215,200

[Collapse question part]

(a)

Determine total net income if all products are sold at the split-off point.

Net income

(b) determine total net income if all products are sold after further processing

(c) calculate incremental profit/loss and determine which products should be sold at the split off point and which should be proccessed further.

(d) determine total net income using the results from previous part

(e)is the net income different from that determined in part b?

Answer 1

a) If all products are sold at the split-off point.

Product 10 sales value at split off point-$59,800

-joint cost ($100900/$131100*$59,800)-$46025

net income =$13775

Product 12 sales value at split off point-$15300

-joint cost ($100900/$131100*$15300)-$11775

net income =$3525

Product 14 sales value at split off point-$56000

-joint cost ($100900/$131100*$56000)-$43100

net income =$12900

total net income =$30,200 i.e$13775+$3525+$12900

b)total net income if all products are sold after further processing

sales value after further processing product 10-$190,300

-Cost to process further product 10-$100,900

-joint cost ($100,900/$131100*$59,800)-$46025

net income =$43375

sales value after further processing product 12-$34800

-Cost to process further product 12-$29000

-joint cost ($100,900/$131100*$15300)-$11775

net loss =($5975)

sales value after further processing product 14-$215200

-Cost to process further product 14-$149900

-joint cost ($100900/$131100*$56000)-$43100

net income =$22,200

total net income if all products are sold after further processing=$43375+($5975)+$22,200

=$59600

c) total incremental profit=$59600-$30,200

=$29,400

as we can see that if product 12 is sold after further processing it is resulting into net loss that's why it should be sold before further processing and product 10 and 14 should be sold after further processing as the incremental revenue is more.

d)total net income if product 10 & 14 are sold after further processing and product 12 is sold at split off point

=product 10 -$43375+ product 12-$3525+product 14$22200

=$69,100

e) net income is more in comparison to part b because in part d product 12 is sold before further processing whereas in part b it was sold after further processing which resulted into a loss. part d is the max. profit generating strategy for the firm.

Note- JOINT COST IS APPORTIONED ON THE BASIS OF MARKET VALUE WEIGHT AT SPLIT OFF POINT