Mitchener Corp. manufactures three products from a common input in a joint proce
ID: 2519781 • Letter: M
Question
Mitchener Corp. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $300,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point.
Each product may be sold at the split-off point or processed further. The additional processing costs and sales value after further processing for each product (on an annual basis) are:
The "Further Processing Costs" consist of variable and avoidable fixed costs.
INSTRUCTIONS Determine which product or products should be sold at the split-off point, and which product or products should be processed further? When complete, answer each of the following by selecting the correct match from the list provided.
What is the incremental revenue for Product M?
What is the incremental income (loss) for Product M?
What is the incremental revenue for Product N?
What is the incremental income (loss) for Product N?
What is the incremental revenue for Product P?
What is the incremental income (loss) for Product P?
Which of the product or products, should be processed further?
$(20,000)
$15,000
$45,000
$130,000
$100,000
$20,000
M and N
Product Sales Valueat Split-Off Further
Processing
Costs Sales Value
After Further
Processing M $200,000 $ 85,000 $300,000 N 155,000 110,000 285,000 P 325,000 65,000 370,000
Explanation / Answer
Answer:
First we need to calculate the incremetal revenue and incremental Profit or loss for each product as under
Product
Sales Value
Further
Sales Value
at Split-Off
Processing
After Further
Costs
Processing
Incremental
revenue
incremental
income (loss)
A
B
C
D=C-A
E=D-B
M
200000
85000
300,000
100,000
15,000
N
155000
110000
285000
130,000
20,000
P
325000
65000
370,000
45,000
(20,000)
What is the incremental revenue for Product M?
100,000
What is the incremental income (loss) for Product M?
15,000
What is the incremental revenue for Product N?
130,000
What is the incremental income (loss) for Product N?
20,000
What is the incremental revenue for Product P?
45,000
What is the incremental income (loss) for Product P?
(20,000)
Which of the product or products, should be processed further?
M and N
Product
Sales Value
Further
Sales Value
at Split-Off
Processing
After Further
Costs
Processing
Incremental
revenue
incremental
income (loss)
A
B
C
D=C-A
E=D-B
M
200000
85000
300,000
100,000
15,000
N
155000
110000
285000
130,000
20,000
P
325000
65000
370,000
45,000
(20,000)