Question

The Herman Company uses a joint process to produce products W, X, Y and Z. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $32,500. Other relevant data are as follows: Product Sales Value at Split-Off Additional Costs of Processing Sales Value of Final Product W $7,500 $9,000 $ 22,500 X 13,500 7,500 20,000 Y 9,000 12,500 15,000 Z 6,500 5,500 12,500 $36,500 $34,500 $70,000 Calculate the effect on profits of processing each product beyond the split-off point. Calculate the effect on profits of processing only those with a positive contribution beyond the split-off point. Enter your answers in the following space

Answer 1

Answer:

W: positive contribution of 6,000

Z:  positive contribution of 1,000

X: negative of 1,000

Y: negative of 6,500

Explanation:

value at the end- value at split off  = value added for processing:

value added - addtional cost = advantage/disadvantage of processing

W (22,500- 7,500) - 9,000  = 15,000 - 9,000 = 6,000

X (20,000 - 13,5000) - 7,500 = 6,500 - 7,500 = (1,000)

Y (15,000 - 9,000) - 12,500 = 6,000 - 12,500 = (6,500)

Z (12,500 - 6,500) - 5,500 = 6,000 - 5,500 = 1,000