Dock Corporation makes two products from a common input. Joint processing costs up to the split-off point total $33,600 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: What is the financial advantage (disadvantage) for the company of processing Product Y beyond the split-off point?
A) $9,600
B) $2,400
C) $33,600
D) $26,400

Question

Dock Corporation makes two products from a common input. Joint processing costs up to the split-off point total $33,600 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:  What is the financial advantage (disadvantage) for the company of processing Product Y beyond the split-off point?
A) $9,600 
B) $2,400 
C) $33,600 
D) $26,400

Quizplus · Accepted Answer

To find the financial advantage (disadvantage), we need to compare the incremental revenue and cost of processing Product Y beyond the split-off point.

Incremental Revenue = Sales Value of Product Y after split-off point - Sales Value of Product Y at split-off point
= $50,400 - $36,000
= $14,400

Incremental Cost = Additional Processing Cost for Product Y
= $24,000

Therefore, the financial advantage (disadvantage) of processing Product Y beyond the split-off point = Incremental Revenue - Incremental Cost
= $14,400 - $24,000
= -$9,600

Since the answer is negative, it means that processing Product Y beyond the split-off point would result in a financial disadvantage for the company. Therefore, the best choice is not to process Product Y beyond the split-off point.

Dock Corporation Makes Two Products from a Common Input