Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $51,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Allocated joint processing costs. Sales value at split-off point Costs of further processing Sales value after further processing Product X $ 20,400 $ 20,000 $ 23,300 $ 38,800 a. Financial disadvantage b. Financial advantage c. Minimum acceptable amount d. Minimum acceptable amount Required: a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.) b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point? Answer is complete but not entirely correct. ✓ $ $ $ $ (4,500) Product Y $ 30,600 $ 30,000 $ 17,600 $ 56,500 8,900✔ 20,400 X 30,600 X Total $ 51,000 $ 50,000 $ 40,900 $ 95,300
Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $51,000 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Allocated joint processing costs. Sales value at split-off point Costs of further processing Sales value after further processing Product X $ 20,400 $ 20,000 $ 23,300 $ 38,800 a. Financial disadvantage b. Financial advantage c. Minimum acceptable amount d. Minimum acceptable amount Required: a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amount should be indicated by a minus sign.) b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point? c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point? Answer is complete but not entirely correct. ✓ $ $ $ $ (4,500) Product Y $ 30,600 $ 30,000 $ 17,600 $ 56,500 8,900✔ 20,400 X 30,600 X Total $ 51,000 $ 50,000 $ 40,900 $ 95,300
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:### Joint Processing Costs and Decision Making for Ibsen Company
Ibsen Company manufactures two products from a common input. Joint processing costs up to the split-off point total $51,000 annually. The costs are allocated to the joint products based on their total sales values at the split-off point. Each product can either be sold at the split-off point or processed further. Data concerning these products are as follows:
| Cost/Revenue Type | Product X | Product Y | Total |
|-------------------------------------|------------|------------|-----------|
| Allocated joint processing costs | $20,400 | $30,600 | $51,000 |
| Sales value at split-off point | $20,000 | $30,000 | $50,000 |
| Costs of further processing | $23,300 | $17,600 | $40,900 |
| Sales value after further processing| $38,800 | $56,500 | $95,300 |
**Required:**
1. **Financial Advantage (Disadvantage) of Processing Further:**
- a. What is the financial advantage (disadvantage) of processing Product X beyond the split-off point? (Negative amounts should be indicated by a minus sign.)
- b. What is the financial advantage (disadvantage) of processing Product Y beyond the split-off point?
2. **Minimum Acceptable Amounts:**
- c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
- d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?
### Calculations and Results:
The answers along with their status of correctness are presented below:
- **a. Financial disadvantage**:
- Calculation:
- Further Revenue Gain: $38,800 (sales value after processing) - $23,300 (costs of further processing)
- Revenue at Split-off Point: $20,000
- Financial Disadvantage: $38,800 - $23,300 - $20,000 = **$(4,500)**
- Result: **$(4,500)** (Correct)
- **b. Financial advantage**:
- Calculation:
- Further Revenue Gain: $56,500 (
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