Pathp Words 0 QUESTION 15 Stapplees Company manufactures thr

Path.p Words 0 QUESTION 15 Stapplees Company manufactures three products using the samie production process. The costs incurred up to the splt-off point are $200,000 These costs ar allocated to the products on the basis of their sales value at the split-off point. The number of units produced, the selling prices per unit of the theee products at the split-off point and after further processing and the additional processing costs are as follow Number of Selling Price Selling Price Additional Product at Split off 5,000 10,000 4,000 $10.00 11.60 19.40 $15 00 16.20 2160 $14000 21,000 12000 Instructions Present the analysis in a table. (a) Which product(s) should be processed further and which should be sold at the split-off point? b) Would your decision be different if the company was using the quantity of output to allocate joint costs? Explain T T T ? Paragraph \' Arial 3(12pt) , :?.E. T e Cliel Sace and Submit to se and submit. Click Save A A Save All An

Solution

a)

S.No

Product

X

Y

Z

Total

1

Units Produced

5000

10000

4000

19000

2

Selling Price at Split-off point(in $)

10

11.6

19.4

3

Sales Value at Split-off point (in $) ( 1x2)

50000

116000

77600

4

Total Sales Value at Split-off point

243600

5

Cost incurred up to Split-off Point

200000

6

Allocation of Split-off cost in proportion of Sales value at Split-off point (in $ )

41051

(200000*50000/243600)

95238

(200000*116000/243600)

63711

(200000*116000/243600)

7

Profit at Split-off point (3-6)

8949

20762

13889

43600

8

Selling Price after processing (in $)

15

16.2

21.6

9

Sales Value after processing (in $) (1x8)

75000

162000

86400

10

Allocation of Split-off cost in proportion of Sales value at Split-off point (in $)

41051

95238

63711

11

Additional Processing Cost (in $)

14000

21000

12000

12

Total Cost (in $) (10+11)

55051

116238

75711

13

Profit after Processing (9-12)

19949

45762

10689

14 Incremental

Profit on further 11000 25000 -3200

Processing (13-7)

It has seen from above table that for Product X & Product Y there is more profit by selling after further Processing than  selling at Split-off, therefore should be processed further

In case of product Z there has been loss on further processing while there have been profit by selling at split-off , therefore should be selled at split-off.

b) Please find below

When allocation of cost is made on basis of quantity produced , Product X and Product Y should be further processed and Product Z should be sold at Split-off point.

S.No

Product

X

Y

Z

Total

1

Units Produced

5000

10000

4000

19000

2

Selling Price at Split-off point(in $)

10

11.6

19.4

3

Sales Value at Split-off point (in $) ( 1x2)

50000

116000

77600

4

Total Sales Value at Split-off point (in $)

243600

5

Cost incurred up to Split-off Point(in $)

200000

6

Allocation of Split-off cost in proportion of Units Produced (in $ )

52632

(200000*5000/19000)

105263

(200000*10000/19000)

42105

(200000*4000/1900)

7

Profit at Split-off point(in $)

-2632

10737

35495

43600

8

Selling Price after processing (in $)

15

16.2

21.6

9

Sales Value after processing (in $)

75000

162000

86400

10

Allocation of Split-off cost in proportion of Units Produced (in $ )

52632

105263

42105

11

Additional Processing Cost (in $)

14000

21000

12000

12

Total Cost (in $)

66632

126263

54105

13

Profit after Processing (in $)

8368

35737

32295

S.No	Product	X	Y	Z	Total
1	Units Produced	5000	10000	4000	19000
2	Selling Price at Split-off point(in $)	10	11.6	19.4
3	Sales Value at Split-off point (in $) ( 1x2)	50000	116000	77600
4	Total Sales Value at Split-off point				243600
5	Cost incurred up to Split-off Point				200000
6	Allocation of Split-off cost in proportion of Sales value at Split-off point (in $ )	41051 (200000*50000/243600)	95238 (200000*116000/243600)	63711 (200000*116000/243600)
7	Profit at Split-off point (3-6)	8949	20762	13889	43600
8	Selling Price after processing (in $)	15	16.2	21.6
9	Sales Value after processing (in $) (1x8)	75000	162000	86400
10	Allocation of Split-off cost in proportion of Sales value at Split-off point (in $)	41051	95238	63711
11	Additional Processing Cost (in $)	14000	21000	12000
12	Total Cost (in $) (10+11)	55051	116238	75711
13	Profit after Processing (9-12)	19949	45762	10689