Megan Company produces 2 products, X and Y, from the same production process with joint product costs of $360,000 per month. The 2 products can be sold at the split-off point or processed further and then sold. Separable production costs are incurred for each product after the split-off point. The firm has always processed both products further to maximize the revenue involved. All joint costs are allocated to the 2 products on the basis of their relative sales value. Unit selling prices and total monthly production at the split-off point are: Product Monthly Production Selling Price X 15,000 pounds $16 per pound Y 20,000 pounds $ 8 per pound The additional processing costs and selling prices after the split-off point are: Product Additional Processing Costs Selling Price X $90,000 $20 per pound Y $100,000 $15 per pound A summarized version of the company’s operating performance for the past month shows the following” X Y Total Revenue: 15,000 pounds X $20 $300,000 20,000 pounds X $15 $300,000 $600,000 Separable costs 15,000 pounds X $6 $90,000 20,000 pounds X $5 $100,000 $190,000 Joint product costs (allocated by revenue) $360,000 X ($300,000/$600,000) $180,000 $360,000 X ($300,000/$600,000) $180,000 $360,000 Gross Profit $30,000 $20,000 $50,000 Required: If the firm sold both products at the split-off point, how much gross profit would be earned? Evaluate the joint product costing approach used by Megan Company. Do you agree or disagree with what was done? How much gross profit could the company have earned if it had chosen correctly between selling at the split-off point and after further processing?
Megan Company produces 2 products, X and Y, from the same production process with joint product costs of $360,000 per month. The 2 products can be sold at the split-off point or processed further and then sold. Separable production costs are incurred for each product after the split-off point. The firm has always processed both products further to maximize the revenue involved. All joint costs are allocated to the 2 products on the basis of their relative sales value. Unit selling prices and total monthly production at the split-off point are:
|
Product |
Monthly Production |
Selling Price |
|
X |
15,000 pounds |
$16 per pound |
|
Y |
20,000 pounds |
$ 8 per pound |
The additional
|
Product |
Additional Processing Costs |
Selling Price |
|
X |
$90,000 |
$20 per pound |
|
Y |
$100,000 |
$15 per pound |
A summarized version of the company’s operating performance for the past month shows the following”
|
|
X |
|
Y |
|
Total |
|
Revenue: |
|
|
|
|
|
|
15,000 pounds X $20 |
$300,000 |
|
|
|
|
|
20,000 pounds X $15 |
|
|
$300,000 |
|
$600,000 |
|
Separable costs |
|
|
|
|
|
|
15,000 pounds X $6 |
$90,000 |
|
|
|
|
|
20,000 pounds X $5 |
|
|
$100,000 |
|
$190,000 |
|
Joint product costs (allocated by revenue) |
|
|
|
|
|
|
$360,000 X ($300,000/$600,000) |
$180,000 |
|
|
|
|
|
$360,000 X ($300,000/$600,000) |
|
|
$180,000 |
|
$360,000 |
|
Gross Profit |
$30,000 |
|
$20,000 |
|
$50,000 |
Required:
- If the firm sold both products at the split-off point, how much gross profit would be earned?
- Evaluate the joint product costing approach used by Megan Company. Do you agree or disagree with what was done?
- How much gross profit could the company have earned if it had chosen correctly between selling at the split-off point and after further processing?
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