Question

Stahl inc. produces three separate products from a common process costing $100,000. 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 $60,000 $100,000 $190,000 product 12 15,000 30,000 35,000 product 14 55,000 150,000 215,000 instructions (a) determine total net income if all products are sold at the split-off point. (b) determine total net income if all products are sold after further processing. (c) using incremental analysis, determine which products should be sold at the split-off point and which should be processed further. (d) determine total net income using the results from (c) and explain why the net income is different from that determined in (b).

Answer 1

Answer:

a. Computation of total Net Income if all products are sold at split-off point

 Sales : Product 10               $60,000

              product 12                15,000

              product 14               55,000

                                                130,000

Common processsing cost   (100,000)

Net income                                30,000

b. Computation of Net Income if all produts are sold after proccessing further

 sales : Product 10                        $190,000

              product 12                         35,000

              product 14                         215,000

                                                       440,000

Cost  :

Common cost        100,000

futher processing:

Product 10              100,000

product 12                30,000

product 14              150,000           (380,000)

Net Income                                      60,000

c. Using Incremental Analysis

                                              prodcut 10            product 12             product 14

Increase in sales revenue   $130,000               $20,000                $160,000

further processing cost           (100,000)          (30,000)                (150,000)  

Incremental revenue                30,000              (10,000)                 10,000    

product 12 should not be processed further because it will bring  loss to the company.

d.    Computation of Net Income based on the "c" above result

Sales : Product 10                                  $190,000

           product 12                                     15,000

         product 14                                     215,000

                                                               420,000

cost:

common cost                       100,000

further processing cost :

product 10                            100,000

product 14                             150,000  350,000

Net Income                                              70,000

Explanation: