Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $43,200 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Product XProduct YTotalAllocated joint processing costs$25,600 $17,600 $43,200 Sales value at split-off point$32,000 $22,000 $54,000 Costs of further processing$15,900 $17,400 $33,300 Sales value after further processing$47,500 $40,800 $88,300 Required:a.What is financial advantage (disadvantage) of processing Product X beyond the split-off point?b.What is financial advantage (disadvantage) of processing Product Y beyond
the split-off point?c.What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?d.What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?
What will be an ideal response?
a. and b.
| Product X | Product Y | |||||
| Sales value after further processing | $ | 47,500 | $ | 40,800 | ||
| Costs of further processing | 15,900 | 17,400 | ||||
| Benefit of further processing | 31,600 | 23,400 | ||||
| Less: Sales value at split-off point | 32,000 | 22,000 | ||||
| Financial advantage (disadvantage) from further processing | $ | (400) | ? | $ | 1,400 | |
| Product X | Product Y | |||||
| Minimum selling price at split-off | $ | 31,600 | $ | 23,400 | ||
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