Process further or sell, joint cost allocation. (R. Capettini) Three products are produced 1P.r oduct A incremental costs, in a joint process by the Maxxim Company. The products are denoted as A, B, and C. The

$1,200 joint costs are composed of a fixed cost of $6,000 and a variable cost of $2.40 per input unit.

Each product can be either processed further or, at the splitoff point, it (1) can be sold or

(2) must be disposed of at a cost. Out of each input unit, Maxxim Company produces 1 unit of A, 3 units of B, and 2 units of C. In addition, the company has selling and administrative costs of $16,800.

REQUIRED 1. Given the table below, for each product, should Maxxim Company process the product further or dispose of it (or sell it) at the splitoff point, if Maxxim Company inputs 5,000 units? Show, for each product, how much better off Maxxim would be if it followed your advice versus making the alternative decision. Assume that if Maxxim does not farther process a product, it does not incur any of the further processing costs.

2. What is Maxxim Company’s gross margin at the 5,000-unit input level?
LO1

Transcribed Image Text:

Product Selling Price per Unit at Splitoff Point Cost per Unit to Dispose of Product at Splitoff Point Further Processing Costs Selling Price per Unit after Further Processing Variable Fixed per Unit ABC - $0.24 $7,200 $1.08 $1.80 B $0.60 1,200 1.20 1.80 1.08 12,000 1.32 6.48