Question

Question 3    ch 7 Stahl Inc. produces three separate products from a common process costing $100,700. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period. Sales Value at Split-Off Point Cost to Process Further Sales Value after Further Processing Product 10 $59,100 $100,200 $189,900 Product 12 16,000 30,500 35,000 Product 14 54,000 149,800 215,300

Determine total net income if all products are sold at the split-off point. Net income $ Link to Text

Determine total net income if all products are sold after further processing. Net income $ Link to Text

Calculate incremental profit/(loss) and determine which products should be sold at the split-off point and which should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Product Incremental profit (loss) Decision Product 10 $

Product 12		$

Product 14		$

Link to Text

Determine total net income using the results from previous part. Net income $ Is the net income different from that determined in part (b)?

, net income is

by $

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Answer 1

SOLUTION

1. Calculation of net income if all products are sold at the split off point-

Particulars	Amount ($)	Amount ($)
Sale value-
Product 10	59,100
Product 12	16,000
Product 14	54,000	129,100
Cost of goods sold		(100,700)
Total net income		28,400

2. Calculation of net income if all products are sold after further processing-

Particulars	Amount ($)	Amount ($)
Sale value-
Product 10	189,900
Product 12	35,000
Product 14	215,300	440,200
Cost of goods sold		(100,700)
Net income before further processing		339,500
Cost to process further
Product 10	100,200
Product 12	30,500
Product 14	149,800	(280,500)
Net income after further processing		59,000

3.

Particulars	Product 10	Product 12	Product 14
Sales after further processing	189,900	35,000	215,300
Sales value at split off point	59,100	16,000	54,000
	130,800	19,000	161,300
Cost to process further	100,200	30,500	149,800
Incremental profit / (Loss)	30,600	(11,500)	11,500
Decision	Should be processed further	Should be sold at the split off point	Should be processed further

4.

Particulars	Amount ($)	Amount ($)
Sale value-
Product 10	189,900
Product 12	16,000
Product 14	215,300	421,200
Cost of goods sold		(100,700)
Net income before further processing		320,500
Cost to process further
Product 10	100,200
Product 14	149,800	(250,000)
Net income after further processing		70,500

Difference = 70,500 - 59,000 = 11,500

It is increased by $11,500