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GIVEN Danelle, Inc., produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: Direct Materials Direct Labor Overhead



128000 56000 80000



The revenues from each product are as follows: Alpha, $130,000; Beta, $93,000; Gamma, $30,000; and Delta, $40,000. Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to $73,700. However, to process Delta further means that the company must rent some special equipment costing $15,400 per quarter. Additional materials and labor also needed would cost $8,500 per quarter



Required 1 What is the operating profit earned by the four products for one quarter? 2 Should the division process Product Delta further or sell it at split-off? What is the effect of the decision on quarterly operating profit?



Answer 1 Sales Costs Operating profit 2 Revenues Futher processing cost Operating income



293,000 264,000 29,000 =D23-D24 Sell 40,000



Process Further 73,700



40,000 =E28-E29



23,900 49,800 =F28-F29



The company should process Delta further, because operating profit would increase by $9,800 if it were processed further. (Note: Joint costs are irrelevant to this decision, because the company will incur them whether or not Delta is processed further.)