Question

Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $100,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: product X, $51,000; product Y, $92,000; and product Z, $60,000.

Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

Product	Additional Processing Costs		Sales Value after Further Processing
X	$	35,000	$	79,000
Y	$	39,000	$	154,000
Z	$	11,000	$	80,000

Required:
a.	Compute the incremental profit (loss) for each product. (Loss amounts should be indicated with a minus sign. Omit the "$" sign in your response.)

	Product X	Product Y	Product Z
Incremental profit (loss)	$	$	$

b.	Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
	Product Xunanswered Product Yunanswered Product Zunanswered

c.	Which product or products should be processed further? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

Answer 1

ALLOCATION OF COST AT SPLIT OFF POINT on the basis of sales value

Total joint cost = $100000

Sales value at split off point

Product X = $51000

Product Y = $92000

Product Z = $60000

Total sales value =$203000

Cost allocated to product = total joint cost/total sales value×sales value of respective product

product X = $100000/$203000×$51000=$25123

product Y= $100000/$203000×$92000= $45320

product Z= $100000/$203000×$60000= $29557

Profit if product sold at split off point without further processing = sales value - cost at split off point

product X = $51000 - $25123 = $25877

product Y= $92000 - $45320 = $46680

product Z= $60000- $29557 = $30443

​​​​​​A) INCREMENTAL PROFIT = INCREMENTAL SALES - INCREMENTAL cost- ADDITIONAL PROCESSING COST

product X = $79000 - $51000 -$35000 = $7000

product Y= $154000- $92000- $39000=$23000

product Z=$80000-$60000-$11000 = $9000

B) product X should be sold at split off point because after further processing if it sold it will incurred loss of $7000

C) Product Y and Product Z SHOULD BE FURTHER PROCESSED TO EARN PROFIT OF PRODUCT Y OF $23000 AND PRODUCT Z OF$9000

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