WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows: Product X Product Y Product Z Units produced 2,400 2,900 3,900 Per unit sales value at split-off $ 21.00 $ 24.00 $ 24.00 Added processing costs per unit $ 3.00 $ 5.00 $ 5.00 Per unit sales value if processed further $ 25.00 $ 25.00 $ 30.00 The cost of the joint raw material input is $77,000. Which of the products should be processed beyond the split-off point? Product X Product Y Product Z A) yes yes no B) yes no yes C) no yes no D) no yes yes

WP Corporation

Which of the products should be processed beyond the split-off point? Product X Product Y Product Z

B) yes no yes

Explanation:

a) Data and Calculations:

Budgeted data for the next month:

products                                                           X             Y              Z

Units produced                                              2,400      2,900       3,900

Per unit sales value at split-off                   $ 21.00   $ 24.00   $ 24.00

Added processing costs per unit                $ 3.00     $ 5.00     $ 5.00

Per unit sales value if processed further $ 25.00  $ 25.00    $ 30.00

Added profit after further processing        $ 1.00    ($4.00)      $ 1.00

Further processing of the products X, Y, and Z will yield further or added profit of $1.00 from products X and Z, but a loss of $4 from product Y.  Therefore, product Y should not be processed further, unless its cost structure is such that there is a more than $4 profit to be generated and its further processing is necessary for the other two to be sold, that is if the three products must be sold jointly.  In such a case, management could take further analysis to reduce the cost for consumers.