The Edgerton Co Procdecse products A, B, and C from a joint process. The join costs for 2014 were $85,000. All three products can be processed further and the pertinent information follows:
|Item||Units Produced||Sales Value at Split Off||Sales Value if Processed Further||Added Cost to Process Further|
a) To maximize profits, which product(s) should be processed further?
b) If C is to be processed further, what should its price be to break even?
Joint costing and by-product costing
A joint cost is a type of cost that can benefit or produce one or more products. While a by-product cost is the smallest production cost, and therefore can only produce minor sales and revenue to the company. The costing occurs when the final products are split off into parts or units.
Answer and Explanation:
To determine the product that should be processed further, the difference between the incremental revenue (sales value at split-off - sales value if processed further) and added costs will be computed.
|Product||Incremental Revenue||Added costs||Difference||Should be processed further?|
Based on the above table, Product A should be processed further to achieve maximum profit.
2. If Product C should be processed further, the break-even is as follows:
Break-even = Sales value at split off + Added costs to process further
Break-even = 24,000 + 12,000
Break-even = $36,000
In units, the selling price should be at $24 per unit ($36,000 / 1,500 units)
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from Financial Accounting: Tutoring SolutionChapter 2 / Lesson 13