What is the change in Net Income

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Question - Isherwood Company manufactures three main products, F, G, and W, from a joint process. Joint costs are allocated on the basis of relative sales value at split-off. Additional information for June production activity follows:

 

F

G

W

TOTAL

Units produced

50,000

40,000

10,000

100,000

Joint costs

?

?

?

$450,000

Sales value at split-off

$420,000

$270,000

$60,000

$750,000

Additional costs if processed further

$110,000

$50,000

$20,000

$180,000

Sales value if processed further

$538,000

$320,000

$78,000

$936,000

Required -

1. What is the opportunity cost or benefit from further processing of each product?

2. Which of the products should be processed further, which shouldn't?

3. What is Net Income if no product is processed further?

4. What is the change in Net Income if all the products are processed further?

5. What is the change in Net Income, based on our analysis of question 2 above and assuming that we process the product with benefit as well as the one where we are indifferent?

6. Which option should the company select and what will be the overall Net Income?

Reference no: EM133073830

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