Question

Walman Corp. manufactures products X, Y, and Z from a joint production process. Joint costs are allocated to products on the basis of relative sales value at the split-off point. Additional information is as follows: X Y Z Total Units produced 14,000 10,000 6,000 30,000 Joint costs $204,000 $90,000 $66,000 $360,000 Sales value at split-off ? 150,000 110,000 600,000 Additional costs for further processing 38,000 30,000 22,000 90,000 Sales value if processed further 348,000 185,000 147,000 680,000 Based solely on a relevant cost analysis, which of the three products should be manufactured by Walman beyond the split-off point?

Answer 1

Answer:

We will only produce further product Y and Z

Explanation:

We should check the increase in sales revenue with the increase in cost to know if further process acheive a gain:

Product X

Increase in sales value:

348,000 - 340,000 =  8,000

Additional Cost:       (38,000)  

difference:                 (30,000) Non-profitable

Product Y

Increase in sales revenue:

185,000 - 150,000 =  35,000

additional cost:         (30,000)  

difference:                   5,000 Profitable

Product Z

Increase in sales revenue:

147,000 - 110,000 =   37,000

additional cost:        (22,000)  

difference:                 15,000 Profitable