Information about three joint products follows: $\begin{array}{lccc}
&\underline{X}&\underline{Y} &\underline{Z}\
\text { Anticipated production } & 12,000 \mathrm{~kg} & 8,000 \mathrm{~kg} & 7,000 \mathrm{~kg} \
\text { Selling price/kg at split-off } & \$ 16 & \$ 26 & \$ 48\
\begin{array}{l}
\text { Additional processing costs/ kg } \
\text { after split-off (all variable) }
\end{array} &\$8&\$20&\$20\
\begin{array}{l}
\text { Selling price/ kg after further } \
\text { processing }
\end{array} & \$ 20 & \$ 40 & \$ 70 \
\end{array}$ The cost of the joint process is $140,000.Which of the joint products should be processed further?

Question

Quizplus · Accepted Answer

To determine which product(s) to process further, we need to calculate the relative profitability of each product. One common approach to this is to use the net realizable value (NRV) method, which takes into account the expected selling price of each product and the additional costs required to process it further.

Using the NRV method, we can calculate the incremental profits for each product by subtracting its additional processing costs from its expected selling price:

- Product X: $30,000 - $18,000 = $12,000
- Product Y: $80,000 - $42,000 = $38,000
- Product Z: $60,000 - $32,000 = $28,000

Based on these incremental profits, it is clear that Product Y should be processed further, as it has the highest potential profitability. Products X and Z, on the other hand, both have positive incremental profits but are less profitable than Product Y. Since we are only asked to choose which product(s) should be processed further (not which ones to abandon), we can choose to process Product Z as well, but it is not as profitable as Product Y. Therefore, the best choice is Product C (Z).

Information About Three Joint Products Follows The Cost of the Joint Process Is $140,000