SellorProcessFurther Decision SE9 Gomez Industries produces

Sell-or-Process-Further Decision SE9. Gomez Industries produces three products from a single operation. Product A sells for S4 per unit, Product B for S6 per unit, and Product C for $10 per unit. When B is processed further, there are additional unit costs of S3, and its new selling price is $10 per unit. Each product is allocated $2 of joint costs from the initial production opera tion. Should Product B be processed further, or should it be sold at the end of the initial opcration?

Solution

net income if the products were sold at the split off point

Product

Sale Value ($)

Apportioned joint cost on the basis of sale value ($)

Net income if the products are sold at the split off point ($)

A

4

2

2

B

6

2

4

C

10

2

8

Total

20

6

14

Incremental selling price of the products after further processing

Product

Selling price per unit before further processing ($)

selling price per unit after further processing ($)

Incremental selling price per unit of the processed products ($)

B

6

10

4

Computation of Incremental profit if the products are further processed

Product

Incremental selling price per unit

Incremental revenue ($)

Incremental cost (further processing cost) ($)

Incremental Profit/ (loss)

Whether to be processed further or not

B

4

4

3

1

Yes

Total

4

3

1

B should be processed further as there will be an incremental profit of $1 per unit of B if it is processed further and sold.

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Hope that helps.

Feel free to comment if you need further assistance J

net income if the products were sold at the split off point
Product	Sale Value ($)	Apportioned joint cost on the basis of sale value ($)	Net income if the products are sold at the split off point ($)
A	4	2	2
B	6	2	4
C	10	2	8
Total	20	6	14