50.1K

Verified Solution

Link Copied!

Oates Tannery manufactures three main products from a common input in a joint processing operation. Joint processing costs up to the split-off point are as follows:

Direct materials 150,000

Direct labour 180,000

Supervisor's salary 150,000

Security 50,000

Custodian salaries 40,000

Utilities 30,000

The company allocates these costs to the joint products on-the-basis of their total sales at the split-off point. Each of the products 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:

Further Sales Value

Sales Value Processing After Further

Product at Split-off Costs Processing

X $300,000 $ 150,000 $460,000

Y $200,000 $ 190,000 $360,000

Z $100,000 $ 170,000 $320,000

The "Further Processing Costs" consist of variable and avoidable fixed costs.

Required:

a) Which product or products should be sold at the spilt-off point, and which product or products should be processed further? Show computations.

b) F18 is a minor by-product of the above process and is not included in the above calculations. It is sold after minor further processing. The following information has been provided:

Sales $12,000

Variable costs 2,000

Traceable fixed costs 6,000

Common fixed costs 10,000

Operating loss ($6,000)

What would happen to oats Ltd.'s operating income if F18 was scrapped at no cost at the split-off point rather than processed further? Should oats Ltd. process F18 further?

Answer & Explanation Solved by verified expert

See Answer