A company manufactures three products using the same production process. The costs incurred up to the slit-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the slit-off point. The number of units produced, the selling prices per unit of the three products at the split-off point and after further processing, and the additional processing costs are as follows:
Product Number of Units Produced Selling Price at Split-Off Selling price after processing additional processing cost
1. 4,000 $10.00 $15.00 $14,000
2. 6,000 11.60 16.20 20,000
3. 2,000 19.40 22.60 9,000
Instructions
(a) Which information is relevant to the decision on whether or not to process the products further? Explain why this information is relevant.
(b) Which product(s) should be processed further and which should be sold at the spli-off point?
(c) Would your decision be different is the company was using the quantity of output to allocate joint costs? Explain.