Question
Smith Ltd. manufactures three products using the same production process. The costs incurred up to the point at which manufacturing differs (the split-off point) total
Smith Ltd. manufactures three products using the same production process. The costs incurred up to the point at which manufacturing differs (the split-off point) total $450,000. These costs are allocated to the to the products on the bases of their value at the split-off point. The numbers of units produced, the selling prices per unit at the split-off point and after further processing, and the additional processing costs are as follows:
Product | # of Units Produced | Selling Price at Split-Off Point | Selling Price after Processing | Additional Processing Costs |
A | 6,500 | $17.30 | $20.52 | $23,000 |
B | 10,000 | $25.50 | $30.35 | $26,750 |
C | 4,500 | $33.70 | $35.71 | $14,500 |
a. Determine which information is relevant to the decision on whether to process the products further. Explain why it is relevant or not.
b. Which product(s) should the company process further and which should it sell at the split-off point?
c. What qualitative factors might impact your decision in Part B?
d. Would your decision change if Smith Ltd. changed the how it allocated the joint costs prior to the split-off point? Why or why not?
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