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(a)
Sell or process-further decision:
The purpose of sell or process-further decision is to choose an appropriate alternative that maximizes the operating income. It uses incremental analysis which determines the incremental revenue.
Incremental revenue refers to the difference in the total revenue earned when the product or service is sold at split-off point and the total revenue earned when the product or service is sold after further processing.
If the incremental revenue is more than the incremental costs, the product should be sold after further processing. If the incremental revenue is lesser than the incremental costs, the product should be sold at split-off point.
To explain: The information relevant to the decision on whether to further process the products or not, and the reason behind it.
(b)
Split-off Point:
Split-off point is referred to as the point at which the joint products will become individually identifiable as the separate products.
To determine: The products to be processed further, and the products to be sold at the split-off point.
(c)
Decision-making process:
Decision making can be defined as the process of making choices through the identification of a decision, collecting information, and assessing alternative resolutions. The implementation of a step-by-step process of decision making helps in making deliberate and effective decisions through proper organization of relevant information and defining alternatives.
To Explain: Whether the decision would be different if the company was using the quantity of output to allocate the joint costs.
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Chapter 7 Solutions
Managerial Accounting: Tools for Business Decision Making 7e + WileyPLUS Registration Card
- The following product Costs are available for Haworth Company on the production of chairs: direct materials, $15,500; direct labor, $22.000; manufacturing overhead, $16.500; selling expenses, $6,900; and administrative expenses, $15,200. What are the prime costs? What are the conversion costs? What is the total product cost? What is the total period cost? If 7,750 equivalent units are produced, what is the equivalent material cost per unit? If 22,000 equivalent units are produced, what is the equivalent conversion cost per unit?arrow_forwardPatz Company produces two types of machine parts: Part A and Part B, with unit contribution margins of 300 and 600, respectively. Assume initially that Patz can sell all that is produced of either component. Part A requires two hours of assembly, and B requires five hours of assembly. The firm has 300 assembly hours per week. Required: 1. Express the objective of maximizing the total contribution margin subject to the assembly-hour constraint. 2. Identify the optimal amount that should be produced of each machine part and the total contribution margin associated with this mix. 3. What if market conditions are such that Patz can sell at most 75 units of Part A and 60 units of Part B? Express the objective function with its associated constraints for this case and identify the optimal mix and its associated total contribution margin.arrow_forwardCicleta Manufacturing has four activities: receiving materials, assembly, expediting products, and storing goods. Receiving and assembly are necessary activities; expediting and storing goods are unnecessary. The following data pertain to the four activities for the year ending 20x1 (actual price per unit of the activity driver is assumed to be equal to the standard price): Required: 1. Prepare a cost report for the year ending 20x1 that shows value-added costs, non-value-added costs, and total costs for each activity. 2. Explain why expediting products and storing goods are non-value-added activities. 3. What if receiving cost is a step-fixed cost with each step being 1,500 orders whereas assembly cost is a variable cost? What is the implication for reducing the cost of waste for each activity?arrow_forward
- 5) A company produces one product and uses process costing. In February, they calculate the following costs per equivalent unit for their two cost categories, materials and conversion costs: Materials cost per equivalent unit: $1.89 Conversion cost per equivalent unit: $0.50 What is the best estimate of the incremental cash cost of producing one unit of this company’s product? (Choose the best answer.) Group of answer choices a.Between $1.89 and $2.39 b.Between $.50 and $2.39 c.$1.89 d.$.50 e.$2.39 f.Something lower than $.50 g.Something higher than $2.39 h.Between $.50 and $1.89arrow_forwardThe Fox Corporation produces three products, X, Y, Z, from a single raw material input. Product Y can be sold at the split-off point for total annual revenues of $50,000, or it can be processed further at a total annual cost of $16,000 and then sold for $68,000. Which of the following statements is true concerning Product Y? O Product Y should be sold at the split-off point rather than processed further. O The annual financial advantage from processing Product Y further is $18,000. O The annual financial advantage from processing Product Y further is $68,000. O The annual financial advantage from processing Product Y further is $2,000.arrow_forwardAssume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market) Variable cost per unit Fixed costs per unit (based on capacity) Capacity in units Division B could use Division A's product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. If the company's divisional managers are evaluated based on their division's profits and Division A is currently selling 15,000 units on the outside market. what is Division B's highest acceptable transfer price if it were to buy 4,000 units from Division A? Multiple Choice $48 $52 $ 60 $ 44 $8 20,000 O $44 $58arrow_forward
- A company produces three products Good, Better, and Best. All the three products are processed from a single raw material input. Product “Better" however, can be processed further at an annual cost of $30,000. The processed product will generate an annual revenue of $90,000 against the annual revenue generated for $55,000 at the split-off point. What is the financial advantage/disadvantage to process the product “Better" further? a. The annual financial advantage to process the product “Better" further is $35,000. b. The annual financial disadvantage to process the product "Better" further is $35,000. c. The annual financial advantage to process the product “Better" further is $5,000. d. The annual financial disadvantage to process the product "Better" further is $25,000. Answer A OB Oc OD Submitarrow_forwardUse the following information to answer questions 7 through 9: A joint production process that cost $240,000 generated two main products. P1 has 15,000 units and can be sold at the split-off point for $300,000. P2 has 25,000 units and can be sold at the split-off point for $200,000. A by-product can be sold for $30,000. a. $120,000 7. Using the net realizable value method, how much of the joint costs would be allocated to P1? b. $144,000 c. $156,000 d. $183,000 8. Using the physical quantities method, how much of the joint costs would be allocated to P1? a. $90,000 b. $120,000 c. $150,000 d. $180,000 9. If the sale value of the by-product is deducted from the joint costs of the main products, how much is Pl's share of the total costs? a. $126,000 b. $216,000 C $105,000 d. $184,000 10. The relevant data for deciding whether to process further are: Additional revenue after further processing. b. Joint costs. Additional costs of processing further. d. Both a, and c 11. Which of the…arrow_forwardA company produces three products Good, Better, and Best. All the three products areprocessed from a single raw material input. Product "Better" however, can be processedfurther at an annual cost of $30,000. The processed product will generate an annual revenueof $90,000 against the annual revenue generated for $55,000 at the split-off point. What isthe financial advantage/disadvantage to process the product "Better" further? The annual financial disadvantage to process the product "Better" further is $35,000.The annual financial advantage to process the product "Better" further is $35,000.The annual financial disadvantage to process the product "Better" further is $25,000.The annual financial advantage to process the product "Better" further is $5,000.arrow_forward
- Consider the information below for a company whose products goes through two processes; material cost of GH¢100000 for a quantity of 10000kg, labour cost- GH¢50000 and overhead cost as twice the cost of labour. The company expected an output of 9500kg from process 1 but eventually obtained 9400kg. What value should the output be transferred to process 2?arrow_forwardats Assume a company has three products-A, B, and C-that emerge from a joint process. The joint processing costs that are incurred up to the split-off point equal $1,200,000. The selling prices and outputs for each product at the split-off point are as follows: Product A B С Selling Price $33 per pound $29 per pound $24 per pound Product A B C Each product can be processed further beyond the split-off point. The additional processing costs for each product and their respective selling prices after further processing are as follows: Output 14,000 pounds 18,000 pounds 19,000 pounds Additional Processing Costs $65,000 $72,000 $88,000 Selling Price $37 per pound $34 per pound $30 per pound The company is trying to decide whether to retain or discontinue the entire joint manufacturing process. What is the financial advantage (disadvantage) of continuing to operate the entire joint manufacturing process?arrow_forward2. Nando Company manufactures 3 products, A, B, and C, by the same production process which costs $100,000. Each product could be sold at split off or processed further and sold at a higher price. product Selling Price at Split Off Selling Price After Processed Additional Processing Costs A $60000 $190000 $100000 B $15000 $35000 $30000 C $55000 $215000 $150000 a. Determine the total net income if all products are sold at the split off point. b. Determine the total net income if all products are sold after further processing. c. Which product should be processed further and which product should not? Provide the incremental analysis for your answer.arrow_forward
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