Question

2. In industries that process joint products, the costs of the raw materials inputs and the sales values of intermediate and final products are often volatile. Change the data area of your worksheet to match the following: Α 1 Chapter 11: Applying Excel 3 $ $ 228,000 40,000 9 $ $ $ 126,000 136,000 76,000 10 Data Exhibit 11-7 Santa Maria Wool Cooperative Cost of wool Cost of separation process Sales value of intermediate products at split-off point: Undyed coarse wool Undyed fine wool Undyed superfine wool Costs of further processing (dyeing) intermediate products: Undyed coarse wool Undyed fine wool Undved fine wool Undyed superfine wool Sales value of end products: Dyed coarse wool Dyed fine wool Dyed superfine wool 11 12 13 50,000 60,000 10,000 14 $ 15 16 17 $ $ $ 169,000 235,000 96,000 18

Answer 1

Solution Required a. : Overall profit if all intermediate products are processed into final products $500,000 Combined final sales value ($169,000 + $ 235,000 + $96,000) Less cost of producing the end products: Cost of wool Cost of separation process Combined cost of dyeing ($50,000+ $60,000+ $10,000) Overall Profit ($228,000) ($40,000) ($120,000) ($388,000) $112,000 Overall profit from processing all intermediate products $112,000 Required b. : Financial advantage (disadvantage) from further processing Final sales value after further processing Less: sales value at split-off point Incremental revenue from further processing Less: cost of further processing (dyeing) Financial advantage (disadvantage) of further processing Coarse Fine Wool Wool $169,000 $235,000 ($126,000) ($136,000) $43,000 $99,000 ($50,000) ($60,000) ($7,000) $39,000 Superfine Wool $96,000 ($76,000) $20,000 ($10,000) $10,000 Financial (disadvantage) from further processing undyed coarse wool | ($7,000) Financial advantage from further processing undyed fine wool $39.000 Financial advantage from further processing undyed superfine wool | $10,000 Required c-1.: Sell as is or process further the intermediate products The decision to sell as is or to process further depends on the financial advantage (disadvantage) of further processing the products. Products those having financial disadvantage of further processing, should be sell as is at split off point. While products having financial advantage of further processing, should be processed further. Sell as is or process further the intermediate product undyed coarse wool Sell as is Sell as is or process further the intermediate product undyed fine wool process further process further Sell as is or process further the intermediate product undyed superfine wool Required C-2.: Overall profit if recommendation in part (C-1) is followed $457,000 Combined final sales value ($126,000 + $ 235,000 + $96,000) Less cost of producing the end products: Cost of wool Cost of separation process Combined cost of dyeing ($60,000+ $10,000) Overall Profit ($ 228,000) ($40,000) ($70,000) ($338,000) $119,000 Overall profit from following the plan in part (c) $119,000