Question

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $9,600 of the total joint costs of $12,000. A total of 9,000 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $13 per unit, or it can be processed further for an additional total cost of $54,000 and then sold for $18 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point? Multiple Choice
a. ($18,600)
b. $108,000
c. $600
d. ($9,000)

Answer 1

Answer:

D) ($9000)

Explanation:

We calculate the potential advantage and disadvantage by comparing the profits from the two approaches

Approach 1, no processing

Profits = (13*9000) - 9600 = $107,400

Approach 2, with processing

Profits = (18*9000) - (9600 + 54000)

Profits = $98,400

Total disadvantage of additional processing is,

Disadvantage = 107400-98400

Disadvantage = $9000 or ($9000)

Hope that helps.