Bowen Company produces products P Q and R from a joint produ

Bowen Company produces products P, Q, and R from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced Data for Bowen\'s operations for the current year are as follows: Allocated Joint Production Cost 28,000 49,000 14,000 Sales Value at Split-off Product Units Produced 4,000 7,000 2,000 $38,000 47,000 16,000 Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000 Which products should be processed beyond the split-off point?

Solution

Incremental analysis :

	Product P	Product Q	Product R
Sale value after further processing	50000	65000	25000
Sale value at split off point	38000	47000	16000
Incremental revenue	12000	18000	9000
Incremental cost	-10000	-35000	-6000
Incremental profit (loss)	2000	-17000	3000
Analysis	Yes	No	Yes