A company manufactures three products using the same production process. The costs incurred up to the split-off
Question:
A company manufactures three products using the same production process. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows.
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Instructions
(a) Which information is relevant to the decision on whether or not to process the products further? Explain why this information is relevant.
(b) Which product(s) should be processed further and which should be sold at the split-off-point?
(c) Would your decision be different if the company was using the quantity of output to allocate joint costs?Explain.
Step by Step Answer:
a The costs that are relevant in this decision are the incremental revenues and the incremental costs associated with processing the material past the splitoff point Any costs incurred up to the splitoff point are sunk costs and therefore irrelevant to this decision b Revenue after further processing Product D x 60000 4000 units X 1500 per unit Product E x 97200 6000 units X 1620 per unit Product F x 45200 2000 units X 2260 per unit Revenue at splitoff Product D x 40000 4000 units X 1000 per unit Product E x 69600 6000 units X 1160 per unit Product F x 38800 2000 units X 1940 per unit D E F Incremental revenue 20000 27600 6400 Incremental cost ...View the full answer
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
