AFM481 Chapter Notes - Chapter 15: Gross Margin
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Bonanza Co. manufactures products X and Y from a joint processthat also yields a by-product, Z. Revenue from sales of Z istreated as a reduction of joint costs. Additional information is asfollows:
PRODUCTS | |||||||||||||
X | Y | Z | TOTAL | ||||||||||
Units produced | 25,000 | 25,000 | 12,500 | 62,500 | |||||||||
Joint costs | $ | ? | $ | ? | $ | ? | $ | 287,000 | |||||
Sales value at split-off | $ | 375,000 | $ | 187,500 | $ | 12,500 | $ | 575,000 | |||||
Joint costs were allocated using the net realizable value method atthe split-off point. The joint costs allocated to product Xwere
$93,750.
$115,800.
$187,500.
$183,000.
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $43,000 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:
Product X | Product Y | Total | ||||||||
Allocated joint processing costs | $ | 25,800 | $ | 17,200 | $ | 43,000 | ||||
Sales value at split-off point | $ | 30,000 | $ | 20,000 | $ | 50,000 | ||||
Costs of further processing | $ | 23,800 | $ | 18,100 | $ | 41,900 | ||||
Sales value after further processing | $ | 47,000 | $ | 57,500 | $ | 104,500 | ||||
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?
Sentinel Inc. manufactures three products from a common input ina joint processing operation. Joint processing costs up to thesplit-off point total $50,000 per year. The company allocates thesecosts to the joint products on the basis of their total sales valueat the split-off point. These sales values are as follows: ProductX, $25,000; Product Y, $45,000; and Product Z, $30,000. Eachproduct may be sold at the split-off point or processed further.The additional processing costs and the sales value after furtherprocessing for each product (on an annual basis) are asfollows:
Product X | Product Y | Product Z | ||||
Additional processing costs | $ | 10,000 | $ | 32,000 | $ | 6,000 |
Sales value (after further processing) | 40,000 | 75,000 | 37,000 |
Which of theproduct/s should the company be processing further? |
Product X and Y
Product X
Products Y and Z
Product X and Z