1 answer

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off...

Question:

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $40,000 a year.
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $40,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Allocated joint processing costs Sales value at split-off point Costs of further processing Sales value after further processing Product x $ 24,000 $ 30,000 $ 22,400 $ 47,000 Product Y $ 16,000 $ 20,000 $ 16,700 $ 54,700 Total $ 40,000 $ 50,000 $ 39,100 $101,700 Required: a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.) b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point? d Financial advantage

Answers

Incremental analysis
X Y
Sales after further processing 47000 54700
Less: Sales at splitt off 30000 20000
Incremental revenue 17000 34700
Less: Incremental cost 22400 16700
Incremental Income -5400 18000
Financial disadvantage of processing X beyond splitt off -5400
Financial advantage of processing Y beyond splitt off: 18000
Minimum amount for selling X at splitt off 24600 (47000-22400)
Minimum amount for selling Y at splitt off 38000 (54700-16700)
.

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