Question
Wyatt Chemical Company produces products Alfa, Bata, and Thada from a joint production process. Each product may be sold at the split-off point or be
Wyatt Chemical Company produces products Alfa, Bata, and Thada from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production cots of $184,000 per year are allocated to the products based on the relative number of units produced. Data for Wyatt's operations for the current year are as follows:
Units Produced | Allocated Joint Production Costs | Sales Value at Split-off | ||||
Product | ||||||
Alfa | 16,000 | $64,000 | $152,000 | |||
Bata | 20,000 | $80,000 | 142,000 | |||
Thata | 10,000 |
| $40,000 | 96,000 | ||
46,000 | $184,000 |
Product Alfa can be processed beyond the split-off point for an additional cost of $52,000 and can then be sold for $210,000. Product Bata can be processed beyond the split-off point for an additional cost of $76,000 and can then be sold for $234,000. Product Thada can be processed beyond the split-off point for an additional cost of $24,000 and can then be sold for $114,000.
REQUIRED:
- Calculate the impact on operating income of processing each product further.
- Which product(s) should be processed beyond the split-off point?
- Identify one non-financial consideration relative to this decision.
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