mARVIN mARVEL eNTERPRISES manufactures three products using

mARVIN mARVEL eNTERPRISES manufactures three products using the same production proce5s. The costs incumed up to the spi olf point are s products at the splt-off point and after further processing, and the addihiona The number of units produced, the selling prices per unt of the three costs are allocated to the products on the basis of their sales value at the split-off point. units produced, the Number of Selling Price Addisional Units Produced tSplit off $10.00 11.60 19 40 Product 5,000 10,000 4,000 $15.00 16.20 21.60 $14,000 21,000 12,000 B. Instructions Present the analysis on a table (a) Which product(o) should be processed further and which should be sold at the splt-off point? (b) Would your decision be different if the company was using the quanitity of output to allocate joint costs? Explain

Solution

Incremental anaylsis Product A Product B Product C Number of Units 5000 10,000 4000 Selling price at Splitt off 10 11.6 19.4 Selling price after further processing 15 16.2 21.6 Incremental selling price 5 4.6 2.2 Incremental revenues 25000 46000 8800 Less: Further processing cost 14000 21000 12000 Incremental income/(loss) 11,000 25,000 -3,200 Product A and B shall be further processed product C shall be sold at splitt off. The Allocation of Joint cost baded on different method does not affect the above decision. As the joint cost incurred is a sunk cost which is irrelevant for the decision making.