Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: Which products should Manning process further?
A) All.
B) All except Z.
C) Y and X.
D) None.

Question

Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:  Which products should Manning process further?
A) All. 
B) All except Z. 
C) Y and X. 
D) None.

Quizplus · Accepted Answer

The decision to process further depends on whether the additional revenue from further processing exceeds the additional variable processing costs. To determine which products to process further, we need to calculate the incremental revenue and incremental variable processing costs for each product.

Incremental Revenue:
- Product W: Selling price = $20, incremental revenue from further processing = $60 - $20 = $40
- Product X: Selling price = $30, incremental revenue from further processing = $80 - $30 = $50
- Product Y: Selling price = $50, incremental revenue from further processing = $70 - $50 = $20
- Product Z: Selling price = $10, incremental revenue from further processing = $0 - $10 = -$10 (i.e., it would result in a loss)

Incremental Variable Processing Costs:
- Product W: $20
- Product X: $30
- Product Y: $25
- Product Z: $10

Based on these calculations, we can see that the incremental revenue from further processing exceeds the incremental variable processing costs for products X and Y. Therefore, Manning should process products X and Y further, but not process W and Z further.

Manning Company Uses a Joint Process to Produce Products W