Question
Joint processing costs up to the split-off point total $75,000 per quarter. The company allocates these costs to the joint products on the basis of
| Joint processing costs up to the split-off point total $75,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:
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| Product | Selling Price | Quarterly Output | |||||||||||
| A | $ | 4 | per pound | 10,000 | pounds | ||||||||
| B | $ | 7 | per pound | 22,000 | pounds | ||||||||
| C | $ | 12 | per gallon | 5,000 | gallons | ||||||||
| Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: | |||||||||||||
| Product | Additional Processing Costs | Selling Price | |||||||||||
| A | $ | 53,000 | $ | 7 | per pound | ||||||||
| B | $ | 38,000 | $ | 11 | per pound | ||||||||
| C | $ | 18,000 | $ | 18 | per gallon | ||||||||
Which products should be processed further?
What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?
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Auditing
Authors: Karla M. Johnstone, Audrey A. Gramling, Larry E. Rittenberg
8th International Edition
0538477660, 978-0538477666
