Exercise 11-42 (Algo) Sell or Process Further: Multiple Choice (LO 11-9) Oak View Chemicals produces two main products, M-10 and M-20, and one by-product, B-60, from a single input, Chem-X. Products M-10 and M-20 can either be sold at split-off or processed further and sold. A given batch begins with 1,280 gallons of Chem-X with a cost of $115,200. Additional information regarding a batch follows. If Processed FurtherProductUnits ProducedUnit Sales Value at Split-offAdditional Costs (Per Unit)Sales Value (Per Unit)M-10 28,160 $20.00 $16.00 $20.00 M-20 17,920 $24.00 $4.00 $44.00 B-60 6,400 $0.50 NA NA Oak View Chemicals uses the physical quantities method to allocate joint costs and the revenues from by-products are credited to joint costs. Required:Under these assumptions, the following product(s) should be processed further and then sold: Multiple Choice M-20 M-10 Cannot tell from the information given. Neither M-10 nor M-20 Both M-10 and M-20

Sell or Process further: the sell or process further is a marginal decision made by the company to know the possibilities and profitability of processing a product at split off or processing it further. This decision is made by comparing the Incremental revenue and Incremental cost of the product Accept or Reject criteria: If the product’s Incremental revenue is higher than the incremental cost of the product then process the product further. If the Incremental revenue is less than the Incremental cost of the product then the product must be sold at split off Incremental revenue: it is the additional revenue earned by the company if the product is processed further it is calculated using the formula Sales value per unit if process further – Sales value per unit at split off Incremental cost: It is the additional cost incurred if processed furtherthe answer is option A M-20Product Sales value (per unit) if processed further Unit sales value at split-off Incremental revenue (Sales value (per unit) if processed further - Unit sales value at split-off) Incremental cost (Additional cost per unit) Decision (compare Incremental revenue and Incremental cost if Incremental revenue is higher than Incremental cost process further if not sell at split-off) M-10 20.00 20.00 = 20.00 – 20.00 = 0.00 16.00 Sell at split-off M-20 44.00 24.00 = 44.00 – 24.00 = 20.00 4.00 Process further B-60 NA 0.50 NA NA So the answer is option A M-20

Answered: Under these assumptions, the following…

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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Exercise 11-42 (Algo) Sell or Process Further: Multiple Choice (LO 11-9)

Oak View Chemicals produces two main products, M-10 and M-20, and one by-product, B-60, from a single input, Chem-X. Products M-10 and M-20 can either be sold at split-off or processed further and sold. A given batch begins with 1,280 gallons of Chem-X with a cost of $115,200. Additional information regarding a batch follows.

			If Processed Further
Product	Units Produced	Unit Sales Value at Split-off	Additional Costs (Per Unit)	Sales Value (Per Unit)
M-10		28,160		$	20.00	$	16.00	$	20.00
M-20		17,920		$	24.00	$	4.00	$	44.00
B-60		6,400		$	0.50		NA		NA

Oak View Chemicals uses the physical quantities method to allocate joint costs and the revenues from by-products are credited to joint costs.

Required:

Under these assumptions, the following product(s) should be processed further and then sold:

Multiple Choice

M-20
M-10
Cannot tell from the information given.
Neither M-10 nor M-20
Both M-10 and M-20

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