Answer:
1- a. $8,800
2- b. $13,200
3- c. $5,000 (increase)
4- b. $16,000 (decrease)
Explanation:
1- The joint cost allocated to product A1 is $8,800.
Total sales value of A1 + B1 = $42,000 + $63,000 = $105,000.
The joint cost allocated to product A1 is calculated from formula ;
Joint cost till split off point * (Sales value of A1 / Total sales value of A1 + B1 )
$22,000 x ($42,000 / $105,000)
= $8,800.
2- The joint cost allocated to product B1 is $13,200.
Total sales value of A1 + B1 = $42,000 + $63,000 = $105,000.
The joint cost allocated to product B1 is calculated from formula ;
Joint cost till split off point * (Sales value of B1 / Total sales value of A1 + B1 )
$22,000 x ($63,000 / $105,000)
= $13,200.
3- The net change in operating income resulting from a decision to manufacture product A2 is $5,000 increase.
This can be calculates as, A1 profit - A2 profit
Product A1 profit = Sales value - Cost allocated
Product A1 profit = $42,000 - $8,800
Product A1 profit = $33,200.
Product A2 profit = Sales value - Cost allocated - incremental cost
Product A2 profit = $85,000 - $8,800 - $38,000
Product A2 profit = $38,200.
Net change in operating income = $5,000 ($38,200 - $33,200)
4- The net change in operating income resulting from a decision to manufacture product B2 is $16,000 decrease.
This can be calculates as, B1 Profit - B2 profit
Product B1 profit = Sales value - Cost allocated
Product B1 profit = $63,000 - $13,200
Product B1 profit = $49,800.
Product B2 profit = Sales value - Cost allocated - incremental cost
Product B2 profit = $95,000 - $13,200 - $48,000
Product B2 profit = $33,800.
Net change in operating income = $16,000 decrease ($49,800 - $33,800).
