Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $42,500 a year. The

Question

4 years ago

5

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $42,500 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 $ 17,000 $ 25,500 $ 42,500

Sales value at split-off point $ 20,000 $ 30,000 $ 50,000

Costs of further processing $ 22,900 $ 17,200 $ 40,100

Sales value after further processing $ 38,000 $ 55,700 $ 93,700

Required:

a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point?

b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?

Business

1 answer:

Marina CMI [18] · Answer 1 · 2022-01-21T08:52:37+03:00

Answer:

Financial disadvantage of product X (4,900)

Financial advantage product Y 8500

Explanation:

A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.

Product X $

Sales after split-off point 38,000

Sales value at the split-off point 20,000

Additional sales revenue 18,000

Further processing cost (22,900 )

Financial disadvantage  (4,900)

Product Y $

Sales after split-off point 55,700

Sales value at the split-off point 30,000

Additional sales revenue 25700

Further processing cost (17,200)

Financial advantage  8500 