**Sell at Split-Off or Process Further**Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $12 per pound. A buyer of HS asked Bozo to process HS further into CS compound. If HS were processed further, it would cost $42,500 to turn 14,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $56 per pound.**Required:**1. **What is the contribution to income from selling the 14,000 pounds of HS at split-off?** - Contribution: $130,897 ❌2. **Conceptual Connection: What is the contribution to income from processing the 14,000 pounds of HS into 4,000 pounds of CS?** - Contribution: $13,500 ❌**Decision:**Should Bozo continue to sell the HS at split-off or process it further into CS?- Decision: Process it further into CS ✔️**Feedback:****Check My Work:**1. Calculate revenue of HS when sold at split-off for $11.2. Calculate revenue to process further. Multiply sales price by pounds of CS. Subtract processing cost from revenue for contribution margin.

Answered: Homework LGO ALGO ALGO eBook Sell at…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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**Sell at Split-Off or Process Further**

Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $12 per pound. A buyer of HS asked Bozo to process HS further into CS compound. If HS were processed further, it would cost $42,500 to turn 14,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $56 per pound.

**Required:**

1. **What is the contribution to income from selling the 14,000 pounds of HS at split-off?**
- Contribution: $130,897 ❌

2. **Conceptual Connection: What is the contribution to income from processing the 14,000 pounds of HS into 4,000 pounds of CS?**
- Contribution: $13,500 ❌

**Decision:**
Should Bozo continue to sell the HS at split-off or process it further into CS?
- Decision: Process it further into CS ✔️

**Feedback:**

**Check My Work:**

1. Calculate revenue of HS when sold at split-off for $11.
2. Calculate revenue to process further. Multiply sales price by pounds of CS. Subtract processing cost from revenue for contribution margin.

Expert Solution

Step 1: Define Joint Costs

Joint costs refer to the costs incurred in the production or acquisition of two or more products or services that are produced simultaneously from a common input or process.

Joint costs are allocated or apportioned to the individual products or services using an appropriate cost allocation method.

Contribution to income at split-off = Selling price at split-off x No. of units at split off

Contribution to income from processing = Sales - Cost of Further Processing

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