Respuesta :
Answer:
a. Computation of total Net Income if all products are sold at split-off point
Sales : Product 10 $60,000
product 12 15,000
product 14 55,000
130,000
Common processsing cost (100,000)
Net income 30,000
b. Computation of Net Income if all produts are sold after proccessing further
sales : Product 10 $190,000
product 12 35,000
product 14 215,000
440,000
Cost :
Common cost 100,000
futher processing:
Product 10 100,000
product 12 30,000
product 14 150,000 (380,000)
Net Income 60,000
c. Using Incremental Analysis
prodcut 10 product 12 product 14
Increase in sales revenue $130,000 $20,000 $160,000
further processing cost (100,000) (30,000) (150,000)
Incremental revenue 30,000 (10,000) 10,000
product 12 should not be processed further because it will bring loss to the company.
d. Computation of Net Income based on the "c" above result
Sales : Product 10 $190,000
product 12 15,000
product 14 215,000
420,000
cost:
common cost 100,000
further processing cost :
product 10 100,000
product 14 150,000 350,000
Net Income 70,000
Explanation:
a) The determination of the total net income if all products are sold at the split-off point is $30,000 ($130,000 - $100,000).
b) The determination of the total net income if all products are sold after further processing is $60,000 ($440,000 - $280,000 - $100,000).
c) Using incremental analysis, the determination of which products should be sold at the split-off point and which should be processed further is as follows:
Sales value at Cost to process Sales value after Incremental
split-off point further further processing from further
Product 10 $60,000 $100,000 $190,000 $30,000
Product 12 15,000 30,000 35,000 ($10,000)
Product 14 55,000 150,000 215,000 $10,000
Total $130,000 $280,000 $440,000 $30,000
Thus, Products 10 and 14 should be further processed while Product 12 should be sold at split-off to reduce the incremental loss.
d) The determination of the total net income using the result from (c) is $30,000.
The difference in the net income determined in (d) and (b) lies in the fact that the net income in (d) is an incremental income (that is $60,000 - $30,000) or a comparison of the total net income after further processing and the total net income at the split-off., whereas, the net income in (b) deals with actual net income after further processing.
Data and Calculations:
Common process cost = $100,000
Sales value at Cost to process Sales value after
split-off point further further processing
Product 10 $60,000 $100,000 $190,000
Product 12 15,000 30,000 35,000
Product 14 55,000 150,000 215,000
Total $130,000 $280,000 $440,000
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