Question

ABC company manufactures two products in one process. Joint processing costs up to the split-off point total $33,600 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 $16,800 $16,800 $33,600
Sales value at split-off point $24,000 $24,000 $48,000
Costs of further processing $15,000 $18,700 $33,700
Sales value after further processing $35,500 $45,100 $80,600

What is the financial advantage (disadvantage) for the company of processing Product X beyond the split-off point?
a. ($3,500)
b. $27,700
c. $20,500
d. $3,700

Answer 1

Answer:

a. ($3,500)

Explanation:

Particulars for Product X                                            Amount

Sales value after further processing                          $35,500

Less: Sales value at split-off point                              $24,000

Total incremental revenue                                         $11,500

Less: Total incremental processing costs                  $15,000

Financial (disadvantage) of further processing      ($3,500)

So, the financial disadvantage for the company of processing Product X beyond the split-off point is $3,500.