Question

WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows:
Product X Product Y Product Z
Units produced 1,500 2,000 3,000
Per unit sales value at split-off $ 19.00 $ 21.00 $ 24.00
Added processing costs per unit $ 7.00 $ 7.50 $ 7.00
Per unit sales value if processed further $ 29.00 $ 29.00 $ 30.00
The cost of the joint raw material input is $149,000. Which of the products should be processed beyond the split-off point?
Product X Product Y Product Z
A) Yes Yes No
B) No Yes No
C) Yes No Yes
D) No Yes Yes
1. Choice D
2. Choice A
3. Choice B
4. Choice C

Answer 1

Answer:

yes yes NO ( A  )

Explanation:

products X,Y,Z

units produced : X = 1500 , Y = 2000,  Z = 3000

per unit sales value at split-off : X = $19, Y = $21,   Z = $24

Added processing costs per unit : X = $7, Y = $7.50 , Z = $7

per unit sales value if processed further : X = $29, Y = $29, Z = $30

COST OF JOINT MATERIAL INPUT = $149000

To check for products to be processed further we apply

(unit sales value if processed further - per unit sales value at split-off ) - ( added processing cost )

for product  X = $29 - $19 - $7 = $3

for product Y = $29 - $21 - $7.5 = $0.50

for product Z = $30 - $24 - $7 = - $1  ( negative value )

products to be processed beyond the split of point would be : X Y

because Z  has a negative contribution margin