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:
-Processing Y further will cause profits to
A) increase by $120,000.
B) increase by $52,000.
C) increase by $68,000.
D) decrease by $32,000.

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:  
-Processing Y further will cause profits to
A) increase by $120,000. 
B) increase by $52,000. 
C) increase by $68,000. 
D) decrease by $32,000.

Quizplus · Accepted Answer

To determine the incremental profit of processing product Y further, we need to compare the additional revenue from selling the processed Y with the additional processing costs of processing Y further.

- Total revenue from selling the four products at split-off point: $100,000 + $50,000 + $60,000 + $90,000 = $300,000
- If product Y is processed further, it can be sold for $120,000.
- Additional processing costs of processing product Y further: $50,000
- Incremental profit from processing product Y further: $120,000 - $50,000 = $70,000

Therefore, processing Y further will increase profits by $68,000 (not $70,000, because $2,000 of the $50,000 processing cost is allocated to the other three products based on the relative sales value at split-off point).

Manning Company Uses a Joint Process to Produce Products W