Question

Gusler company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $98,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:

Product Selling Price Quarterly Output
A $ 4 per pound 10,000 pounds
B $ 6 per pound 22,000 pounds
C $ 12 per gallon 5,000 gallons

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

Product Additional Processing Costs Selling Price
A. $ 53,000 $ 6 per pound
B. $ 38,000 $ 13 per pound
C $ 18.000 $ 19 per gallon

Which products should be processed further?

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Particular  After further processing subtract   At the split-off

                  selling price per pound                    selling price  Increment revenue  

Product A $6                                            - $4                        $2

Product B $13                                           - $6                         $7

Product C $19                                         - $12                      $7

Now

Increment revenue Total   Total increment     Total increment

                     quarterly output   revenue        processing cost Increment profit/ loss

$2                 10,000 pounds    $20,000                  $53,000 -$33,000

$7                 22,000  pounds $154,000            $38,000 $116,000

$7                  5,000  gallons $35,000                    $18,000 $17,000

According to the analysis, Product (B) and (C) shows profit increment after further processing so they should be processed further.