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Northern Optical ordinarily sells the X-lens for $50. The variable production cost is $10, the fixed production cost is $18 per unit, and the variable
Northern Optical ordinarily sells the X-lens for $50. The variable production cost is $10, the fixed production cost is $18 per unit, and the variable selling cost is $1. A customer has requested a special order for 10,000 units of the X-lens to be imprinted with the customer' s logo. This special order would not involve any selling costs, but Northern Optical would have to purchase an imprinting machine for $50,000. What is the minimum price should Northern Optical negotiation with the customer? 7 Joint products to be sold at which point? Sawmill, Inc. cuts logs from which unfinished lumber and sawdust are the immediate joint products. Per Log LumberSawdust 140 Unfinished lumber is sold "as is" or processed further into finished lumber. 270 Sales value at the split-off point Sales value after further processing Allocated joint product costs Cost of further processing 176 Sawdust can also be sold "as is" to gardening wholesalers or processed further into "presto-logs." 20 Sell or process further? The lumber should be processed further and the sawdust should be sold at the split-off point. Lumber Sawdust Joint costs are irrelevant in decisions regarding what to do with a product from the split-off point forward. Therefore, these costs should not be allocated to end products for decision-making purposes. Sales value immediately Sales value after further process Increase in revenue Increase in Cost of further processing Increase in profit With respect to sell or process further decisions, it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from such processing exceeds the incremental processing costs incurred after the split-off point
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