Question

Kirk Minerals processes materials extracted from mines. The most common raw material that it processes results in three joint products: Spock, Uhura, and Sulu. Each of these products can be sold as is, or each can be processed further and sold for a higher price.
The company incurs joint costs of $180,000 to process one batch of the raw material that produces the three joint products. The following cost and sales information is available for one batch of each product.
Sales Value at Split-Off Point Allocated Joint Costs Cost to Process Further Sales Value of Processed Product
Spock $210,000 $40,000 $110,000 $300,000
Uhura 300,000 60,000 85,000 400,000
Sulu 455,000 80,000 250,000 800,000
- Determine the incremental profit or loss that each of the three joint products.

Answer 1

Answer:

The incremental profits/losses are:

Spock = -$20,000 loss

Uhura = $15,000 gain

Sulu = $95,000 gain

Explanation:

Spock: A, Uhura: B, and Sulu: C

joint production costs = $180,000

   Sales Value at     Allocated Joint      Cost to Process      Sales Value of

   Split-Off Point      Costs                      Further                    Processed Prod.

A  $210,000             $40,000                 $110,000                 $300,000

B  $300,000            $60,000                 $85,000                 $400,000

C  $455,000            $80,000                 $250,000               $800,000

If Spock (A) is sold at split-off point, it will generate $170,000 (= $210,000 - $40,000) in profits. But if it is processed further, it will generate $150,000 (= $300,000 - $150,000) in profits. It should be sold at split-off point.

If Uhura (B) is sold at split-off point, it will generate $240,000 (= $300,000 - $60,000) in profits. But if it is processed further, it will generate $255,000 (= $400,000 - $145,000) in profits. It should be sold after being processed further.

If Sulu (C is sold at split-off point, it will generate $375,000 (= $455,000 - $80,000) in profits. But if it is processed further, it will generate $470,000 (= $800,000 - $330,000) in profits. It should be sold after being processed further.

The incremental profits/losses are:

Spock = profit after processing - profit at split off = $150,000 - $170,000 = -$20,000

Uhura = profit after processing - profit at split off = $255,000 - $240,000 = $15,000

Sulu = profit after processing - profit at split off = $470,000 - $375,000 = $95,000

Answer 2

Answer:

Spock

Incremental Profit or Loss = -$20,000 --- Loss

Uhura;

Incremental Profit or Loss = $15,000 ---Profit

For Sulu;

Incremental Profit or Loss = $95,000 ---Profit

Explanation:

Given

Sales Value at Split-Off Point Allocated Joint Costs Cost to Process Further Sales Value of Processed Product

Spock $210,000 $40,000 $110,000 $300,000

Uhura 300,000 60,000 85,000 400,000

Sulu 455,000 80,000 250,000 800,000

Calculating the incremental profit or loss that each of the three joint products.

Incremental Profit or Loss is calculated by subtracting profit under processing from the current profits.

i.e.

Incremental Profit or Loss = Profit under processing - Current Profit

Currect profits is calculated as

Sales value at split-off point- allocated joint costs

Profit under processing is calculated as

Sales value of processed product- allocated joint cost - further processing cost

For Spock;

Current Profit = $210,000 - $40,000 = $170,000

Profit Under Processing = $300,000 - $40,000 - $110,000 = $150,000

Incremental Profit or Loss = $150,000 - $170,000

Incremental Profit or Loss = -$20,000 --- Loss

For Uhura;

Current Profit = $300,000 - $60,000 = $240,000

Profit Under Processing = $400,000 - $60,000 - $85,000 = $255,000

Incremental Profit or Loss = $255,000 - $240,000

Incremental Profit or Loss = $15,000 ---Profit

For Sulu;

Current Profit = $455,000 - $80,000 = $375,000

Profit Under Processing = $800,000 - $80,000 - $250,000 = $470,000

Incremental Profit or Loss = $470,000 - $375,000

Incremental Profit or Loss = $95,000 ---Profit