Joint costs of $8,000 are incurred to process X and Y. Upon splitoff, $4,000 and $6,000 in costs are incurred to produce 200 units of X and 150 units of Y, respectively. In order to justify processing further at the splitoff point, revenues for product:
a.X must exceed $12,000.
b.Y must exceed $14,000.
c.X must be greater than $60 per unit.
d.Y must be greater than $40 per unit.
Answer:
d.Y must be greater than $40 per unit.
Explanation:
Choice "d" is correct. This is because, the decision at splitoff point to sell or process further will be based on the increase in revenues as against the costs beyond the splitoff point.
Joint costs incurred prior to the splitoff point has gone down, hence, not important in the analysis. After splitoff, each unit of X will cost $20 to produce ($4,000 in costs divided by 200 units) and each unit of Y will cost $40 to produce ($6,000 in costs divided by 150 units). As long as the per unit revenues for X and Y are greater than $20 and $4 respectively, processing further is justified.
Choice "a" is incorrect. This answer choice considers account joint costs of $8,000, which are not necessary.
Choice "b" is incorrect. This answer choice considers account joint costs of $8,000, which are unimportant.
Choice "c" is incorrect. This answer choice considers account joint cost of $8,000 in addition tothe $4,000 of costs for product X beyond the splitoff point. The joint costs should not be considered into the decision.
