A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: $\begin{array}{cccc}
&\text { Sales Value } &\text {Separable} &\text {Sales Value After }\
\text { Product } &\text { at Split-Off } &\text { Cost } & \text { Further Processing }\
\text {J }& \$ 200 & \$ 100 & \$ 400 \
\text {K }& 300 & 200 & 600 \
\text {L }& 100 & 50 & 140 \
\text {M} & 20 & 10 & 40
\end{array}$

Assume that K is processed further and that management is considering an alternative to the current process. The new separable cost of processing would be $250. If the firm is to be no worse off, the product must sell for at least:
A) $550
B) $650
C) $750
D) $850

Question

A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: $\begin{array}{cccc}
&\text { Sales Value } &\text {Separable} &\text {Sales Value After }\
\text { Product } &\text { at Split-Off } &\text { Cost } & \text { Further Processing }\
\text {J }& \$ 200 & \$ 100 & \$ 400 \
\text {K }& 300 & 200 & 600 \
\text {L }& 100 & 50 & 140 \
\text {M} & 20 & 10 & 40
\end{array}$

Assume that K is processed further and that management is considering an alternative to the current process. The new separable cost of processing would be $250. If the firm is to be no worse off, the product must sell for at least:
A) $550
B) $650
C) $750
D) $850

Quizplus · Accepted Answer

To be no worse off than the current process, the revenue from processing K must cover the separable cost of processing ($250) plus its share of the common cost ($500/4 = $125). Therefore, the product must sell for at least $375. Adding this to the highest revenue already generated ($175 + $150 = $325) gives a total revenue of $700, which would be generated if K is processed further into L and M. Therefore, the product must sell for at least $700/4 = $175. Adding this to $375 gives the minimum selling price of $550.

A Joint Input Costing $500 Results in Four Distinct Products