Question: Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $44,000 a year. The company allocates these
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $44,000 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 | $ | 17,600 | $ | 26,400 | $ | 44,000 | ||||
| Sales value at split-off point | $ | 20,000 | $ | 30,000 | $ | 50,000 | ||||
| Costs of further processing | $ | 23,900 | $ | 18,200 | $ | 42,100 | ||||
| Sales value after further processing | $ | 37,200 | $ | 57,700 | $ | 94,900 | ||||
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?
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