WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows: Product X Product Y Product Z Units produced 1,800 2,300 3,300 Per unit sales value at split-off $ 16.00 $ 19.00 $ 18.00 Added processing costs per unit $ 3.00 $ 5.00 $ 5.00 Per unit sales value if processed further $ 20.00 $ 20.00 $ 25.00 The cost of the joint raw material input is $71,000. Which of the products should be processed beyond the split-off point

Product X and Product Z should be processed beyond the split-off point because their Profits beyond split-off point are greater than Profits at split-off point.

Explanation:

Note: The data in this question are merged together. They are therefore sorted before answering the question. See the attached pdf file for the complete question with the sorted data.

The explanation to the answer is now given as follows:

Also note: See the attached excel file for the calculation of the Profit at split-off point and profit Profit beyond split-off point.

In the attached excel file, the share cost of joint raw material input is calculated as follows:

Units produced of Product X = 1,800

Units produced of Product Y = 2,300

Units produced of Product Z = 3,300

Total units = Units produced of Product X + Units produced of Product Y + Units produced of Product Z = 1,800 + 2,300 + 3,300 = 7,400

Share of cos joint raw material input = (Units of a Product / Total unit) * Cost of the joint raw material input …. (1)

Using equation (1), we have:

Product X share of cost of joint raw material input = (1,800 / 7,400) * $71,000 = $17,270

Product Y share of cost of joint raw material input = (2,300 / 7,400) * $71,000 = $22,068

Product Z share of cost of joint raw material input = (3,300 / 7,400) * $71,000 = $31,662  

Decision Rule:

A product should be processed beyond the split-off point if its Profit beyond split-off point is greater than Profit at split-off point.

From the attached excel file, only Product X and Product Z meet this requirement as determined as follows:

For Product X

Profit at split-off point = $11,530

Profit beyond the split-off point = $13,330

Since Profit beyond split-off point is greater than Profit at split-off point, Product X should be processed beyond the split-off point.

For Product Y

Profit at split-off point = $21,632

Profit beyond the split-off point = $12,432

Since Profit beyond split-off point is less than Profit at split-off point, Product X should NOT be processed beyond the split-off point.

For Product Z

Profit at split-off point = $27,738

Profit beyond the split-off point = $34,338

Since Profit beyond split-off point is greater than Profit at split-off point, Product Z should be processed beyond the split-off point.

Based on the analysis above, only Product X and Product Z should be processed beyond the split-off point since their Profits beyond split-off point are greater than Profits at split-off point.