Each day, Lixia Ltd. processes 1 ton of a secret raw material into two resulting products, AB1
Question:
Each day, Lixia Ltd. processes 1 ton of a secret raw material into two resulting products, AB1 and XY1. When it processes 1 ton of the raw material, the company incurs joint processing costs of HK$600,000. It allocates HK$250,000 of these costs to AB1 and HK$350,000 of these costs to XY1. The resulting AB1 can be sold for HK$1,000,000. Alternatively, it can be processed further to make AB2 at an additional processing cost of HK$450,000 and sold for HK$1,500,000. Each day’s batch of XY1 can be sold for HK$950,000. Or, it can be processed further to create XY2, at an additional processing cost of HK$500,000, and sold for HK$1,300,000. Discuss what products Lixia should make.
Step by Step Answer:
Accounting Principles
ISBN: 978-1119419617
IFRS global edition
Authors: Paul D Kimmel, Donald E Kieso Jerry J Weygandt