A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: $\begin{array}{lrrr}
&\text { Sales Value }& \text { Separable }& \text { Sales Value After }\
\text { Product }& \text { at Split-Off } & \text { Cost } & \text { Further Processina }\
\hline\mathrm{J }& \$ 200 & \$ 100 & \$ 400 \
\mathrm{K} & 300 & 200 & 600 \
\mathrm{L} & 100 & 50 & 140 \
\mathrm{M} & 20 & 10 & 40
\end{array}$ Assume that after the split-off point one unit of J can be processed directly into one unit of K, and then processed further as shown for product K. For the purpose of making this decision, what is the opportunity cost to be assigned to a unit of J?
A) $400
B) $300
C) $200
D) $100

Question

A joint input costing $500 results in four distinct products at the point of split-off. Relevant data follows: $\begin{array}{lrrr}
&\text { Sales Value }& \text { Separable }& \text {  Sales Value After }\
\text { Product }& \text { at Split-Off } & \text { Cost } & \text { Further Processina }\
\hline\mathrm{J }& \$ 200 & \$ 100 & \$ 400 \
\mathrm{K} & 300 & 200 & 600 \
\mathrm{L} & 100 & 50 & 140 \
\mathrm{M} & 20 & 10 & 40
\end{array}$ Assume that after the split-off point one unit of J can be processed directly into one unit of K, and then processed further as shown for product K. For the purpose of making this decision, what is the opportunity cost to be assigned to a unit of J?
A) $400
B) $300
C) $200
D) $100

Quizplus · Accepted Answer

The opportunity cost of using a unit of J to produce K instead of selling it directly is the foregone net benefit from selling J as is. This is calculated as the sales value of J at split-off ($200) plus the additional profit it could generate if sold after further processing ($400 sales value after processing - $100 separable cost = $300 net benefit) minus the sales value of K after further processing ($600). However, since J is processed directly into K, the correct opportunity cost is the difference in net benefit between selling J as is and processing it into K, which is the sales value of J at split-off ($200). This is because the question asks for the opportunity cost of using J to produce K, considering J's own potential, not the comparison after further processing into K. The calculation provided was incorrect in the explanation; the opportunity cost should reflect the value J could have brought if not converted into K, which is its sales value at split-off.

A Joint Input Costing $500 Results in Four Distinct Products