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XYZ Company makes two products, W and P, in a joint process. At the split-off point,...

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Accounting

XYZ Company makes two products, W and P, in a joint process. Atthe split-off point, 45,000 units of Product W and 70,000 units ofProduct P are available each month. Monthly joint production coststotal $184,000 and are allocated to the two products equally.Product W can either be sold at the split-off point for $6.10 perunit or it can be processed further and then sold for $8.80 perunit. If Product W is processed further, additional processingcosts of $3.20 per unit will be incurred. Product P can also besold either at the split-off point for $4.25 per unit or it can beprocessed further and then sold for $7.60 per unit. If Product P isprocessed further, additional processing costs of $2.90 per unitwill be incurred. However, the further processing of Product P willresult in a loss of 6,000 units (i.e., only 64,000 units of ProductP will be available for sale if it is processed further). Thefurther processing of Product W will not result in the loss of anyunits. Assume XYZ Company makes all the correct sell or processfurther decisions. Calculate the amount of net income reported byXYZ Company last month.

Answer & Explanation Solved by verified expert
4.4 Ratings (738 Votes)

Product W Product P
Output at Split Off Point 45000 70000
Analysis on Sell or Further Process Decision: Product W Product P
Selling Price Post Further Processing 8.80 7.60
Less: Selling Price at Split off Point 6.10 4.25
Incremental Revenue 2.70 3.35
Less: Additional Cost to Process 3.20 2.90
Net Gain After Further Processing -0.50 0.45
Decision Sell at Split off Point Need Further Analysis
Units After Further Processing 64000
Total Gain 28800
Product P:
Output at Split Off Point 70000
Selling Price at Split off Point 4.25
Gain if Sold at Split Off 297500
Product P should also be sold at Split off Point!
Complete Profit & Loss Account:
Revenue-Sell at Split Off Point
Product P: 70000*4.25 297500
Product W: 45000*6.10 274500
Total Revenue 572000
Less: Joint Cost 184000
Net Gain 388000

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