Problem 25

A company manufactures three products using the same production process. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follow:

Number ofSelling PriceSelling PriceAdditional

ProductUnits Producedat Split-offafter ProcessingProcessing Costs

X5,000$10.00$15.00$14,000

Y10,00011.6016.2021,000

Z4,00019.4021.6012,000

Instructions

(a)Which product(s) should be processed further and which should be sold at the split-off point?

(b)Would your decision be different if the company was using the quantity of output to allocate joint costs? Explain.