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SELL OR PROCESS FURTHER JOINT PRODUCTS DECISION
P – 1. Yardley Corporation uses a joint process to produce joint products A, B and C. each
product can be sold at its split off point or processed further. Additional processing
costs are entirely variable and are traceable to the respective products produced.
Joint production costs for 1984 were Rs. 50,000. Sales value and additional cost if
processed further are as follows:
Products
Units
Sales value
Sales value
Additional
produced at split off point
after
cost
processed
further
A
20,000
Rs.45,000
Rs.60,000
Rs.20,000
B
15,000
75,000
98,000
20,000
C
15,000
30,000
62,000
18,000
Required: To maximize profit which products should Yadley subject to further processing?
Why?
P – 2. Rolex Company manufactures three products from a common input in a joint processing
operation. Joint processing costs up to the split–off point total $100,000 per year. The
company allocates these costs to the joint products on the basis of their total sales value
at the split–off point. These sales values are: product X, $50,000; product Y, $90,000;
and product z, $60,000.
Each product may be sold at the split–off point or processed further. Additional processing
requires no special facilities. The additional processing costs and the sales value after further
processing for each product (on an annual basis) are:
Product Additional Processing Costs Sales Value
X
$
35,000 $
80,000
Y
40,000
150,000
Z
12,000
75,000
Required:
Which product or products should be sold at the split–off point, and which product or
products should be processed further? Show computations.
P – 3. Lone Star Meat Packers is a major processor of beef and other meat products. The
company has a large amount of T–bone steak on hand, and it is trying to decide
whether to sell the T–bone steaks as they are initially cut or to process them further
into filet mignon and the New York cut.
If the T–bone steaks are sold as initially cut, the company figures that a one pound T–bone
steak would yield the following profit:
Selling price ($2.25
$
per pound)
2.2
5
Less: Joint product
1.80
cost
Profit per pound
$
0.4
5
Instead of being sold as initially cut, the T–bone steaks could be further processed into filet
mignon and New York cut steaks. Cutting one side of a T–bone steak provides the filet
mignon, and cutting other side provides the New York cut. One 16 ounce T–bone steak thus
cut will yield one 6–ounce filet mignon and one 8–ounce New York cut; the remaining ounces
are waste. The cost of processing the T–bone steaks into these cuts is $0.25 per pound. The
filet mignon can be sold for $4 per pound, and the New York cut can be sold for $2.80 per
pound.
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Required:
1. Determine the profit per pound from further processing the T–bone steaks.
2. Would you recommend that the T–bone steaks be sold as initially cut or processed
further? Why?
P – 4. The Dent Products Company manufactures products S and T jointly. Pertinent figures
regarding production and sale of the products are as follows:
Joint manufacturing costs
$
33,00
0
Output of S, 10,000lb., total market
30,000
value
Output of T, 10,000 lb., total market
15,000
value
The company can process product T for an additional cost of $17,000 to obtain 8,000
pounds of product W, which can be sold for $4.10 per pound.
Required:
a.
Allocate the joint costs to S and T.
b.
Should T be further processed? Show computations.
P – 5. A company manufactures two joint products A and B. The data for a month are:
Particulars Production (Kgs.) Sales price per kg.
A
1000
Rs. 20
B
2000
Rs. 30
By further processing it is possible to convert product B into another product (which can be
sold at Rs. 70 per kg.). The additional cost involved in processing 2000 kgs. of B is Rs. 8,000
and the output is 1,000 kgs of C.
Would you advise the management to go in for further processing the product is?
P – 6. A Company manufactures three products and allocates joint cost as given below.
Product
Production
Selling
Sales
Allocated
Unit
price
proceeds
Joint Cost
Cost
of production
A
10,000
Rs.2
Rs.20,000
Rs.16,000
Rs.1.6
B
20,000
3
60,000
48,000
2.4
C
30,000
7
210,000
96,000
3.2
Total
200,000
160,000
If it is possible by additional processing to convert 10,000 units of A into 5,000 units of D,
the additional processing costs are estimated at Rs. 7,000 and the market price of a unit of
D is Rs. 6. Assuming that the company is in a position to tell 5,000 units of D evaluate the
profitability of further processing product A.
P – 7. Royal Industries Ltd. manufactures product X, Y and Z by processing a specific raw
material in department-1. The production process is such that every 1,100 kgs of
material in department-1 yields 400 kgs of X, 250 kgs of Y and 350 kgs of Z. Total
cost of processing a batch of 1,100 kgs of raw materials through department 1 is Rs.
22,000. Now product X, Y and Z can be sold at Rs. 35, Rs. 30 and Rs. 25
respectively. But if they are processed further, they can be sold at Rs. 50, Rs. 40 and
Rs. 30 respectively. The processing further requires Rs. 5,000, Rs. 4,000 and Rs.
2,000 to product X, Y and Z respectively.
Required:
1.
Which product(s) should be at split off point as processing further?
2.
What will be the profitability of the company after processing further?
3.
How do you maximize the profit of the company?
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