Figure 6-8
James Ltd. produces three products in a joint process: A, B, and C. The joint costs are as follows: $\begin{array}{lr}
\text { Direct materials } & £ 50,000 \
\text { Direct labour } & 20,000 \
\text { Overhead } & 40,000
\end{array}$ The split-off values for A, B, and C are £80,000, £100,000, and £60,000, respectively. If management processes the three products beyond the split-off point, sales values for A, B, and C would increase to £150,000, £130,000, and £120,000, respectively. In order to process the products further, the company must incur separable costs of £14,000, £12,000, and £10,000 for products A, B, and C, respectively. James uses the sales-value-at-split-off method to allocate joint costs.
-Refer to Figure 6-8. Should James Ltd. process B further?
A)Process further; profits will increase £30,000.
B)Process further; profits will increase £98,000.
C)Process further; profits will increase £18,000.
D)Sell now.

Question

Quizplus · Accepted Answer

To determine if James Ltd. should process product B further, compare the incremental revenue to the incremental costs. The incremental revenue for processing B further is the difference between its final sales value and its split-off value, which is £130,000 - £100,000 = £30,000. The incremental cost for processing B further is £12,000. Therefore, the net increase in profit for processing B further is £30,000 - £12,000 = £18,000.

Figure 6-8 James Ltd Direct materials £50,000 Direct labour 20,000 Overhead 40,000\begin{array}{lr}\text { Direct materials } & £ 50,000 \\\text { Direct labour } & 20,000 \\\text { Overhead } & 40,000\end{array} Direct materials Direct labour Overhead ​£50,00020,00040,000​

Figure 6-8
James Ltd $\begin{array}{lr}\text { Direct materials } & £ 50,000 \\\text { Direct labour } & 20,000 \\\text { Overhead } & 40,000\end{array}$