Mitchener Corp. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $440,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. Each product 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: Product Sales Value at Split-Off Further Processing Costs Sales Value After Further Processing M $110,000 $ 50,000 $175,000 N 170,000 75,000 235,000 P 160,000 45,000 215,000 The "Further Processing Costs" consist of variable and avoidable fixed costs. INSTRUCTIONS Determine which product or products should be sold at the split-off point, and which product or products should be processed further? When complete, answer each of the following by selecting the correct match from the list provided. What is the incremental revenue for Product M? What is the incremental income (loss) for Product M? What is the incremental revenue for Product N? What is the incremental income (loss) for Product N? What is the incremental revenue for Product P? What is the incremental income (loss) for Product P?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Each product 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:
| Product | Sales Value at Split-Off |
Further Processing Costs |
Sales Value After Further Processing |
|
| M | $110,000 | $ 50,000 | $175,000 | |
| N | 170,000 | 75,000 | 235,000 | |
| P | 160,000 | 45,000 | 215,000 |
The "Further Processing Costs" consist of variable and avoidable fixed costs.
INSTRUCTIONS Determine which product or products should be sold at the split-off point, and which product or products should be processed further? When complete, answer each of the following by selecting the correct match from the list provided.
|
|
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