Style Company manufactures three items, S1, S2, and S3, which are used in the pro duction of
Question:
Style Company manufactures three items, S1, S2, and S3, which are used in the pro duction of fabrics. Each item can be sold at the point that all three are separated from the joint production process, or they can be processed further. Presently, S1 and S2 are processed past the point of separation. The joint cost of producing the three items to the point of separation is $\$ 450,000$. The costs past the point of separation are variable and can be traced to each product. The $\$ 450,000$ joint costs are allocated to each product equally.
The following information is available:
\begin{tabular}{|c|c|c|c|c|}
\hline & \begin{tabular}{l}
Number \\
of Units \\
Produced
\end{tabular} & \begin{tabular}{l}
Selling Price \\
per Unit \\
at Point of \\
Separation
\end{tabular} & \begin{tabular}{l}
Additional \\
Processing \\
Costs
\end{tabular} & \begin{tabular}{l}
Selling Price \\
per Unit \\
After \\
Processing
\end{tabular} \\
\hline & 100,000 & $\$ 10$ & $\$ 120,000$ & $\$ 12$ \\
\hline . . . . . & 40,000 & 9 & 90,000 & 11 \\
\hline . . . . . . . & 60,000 & 11 & $?$ & 13 \\
\hline
\end{tabular}
1. Should S1 and S2 be processed after the separation point?
2. What maximum additional processing costs could be incurred to process $\$ 3$ further and still leave a profit?
Step by Step Answer:
Survey Of Accounting
ISBN: 9780538846172
1st Edition
Authors: James D. Stice, W. Steve Albrecht, Earl Kay Stice, K. Fred Skousen