Mitch Corp. manufactures three products from a common input in a joint processin
ID: 2585195 • Letter: M
Question
Mitch 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:
Sales Value at split-off Further Processing costs Sales value After further processing
Product M $200,000 85,000 300,000
Product N 155,000 110,000 285,000
Product P 325,000 65,000 370,000
Required:
Which product or products should be sold at the split-off point, and which product or products should be processed further? Show computations.
Explanation / Answer
Calcuation Product M Product N Product P Sales Value at split-off A 2,00,000 1,55,000 3,25,000 Sales value After further processing B 3,00,000 2,85,000 3,70,000 Incremental Revenue C= B-A 1,00,000 1,30,000 45,000 Further Processing costs D 85,000 1,10,000 65,000 Incremental profit/Loss E=C-D 15,000 20,000 -20,000 Decision Should be processed further Should be processed further Sold at Split off point