Figure 6-8
James Ltd $\begin{array}{lr}\text { Direct materials } & £ 50,000 \\\text { Direct labour } & 20,000 \\\text { Overhead } & 40,000\end{array}$

question 50

Multiple Choice

Figure 6-8
James Ltd. produces three products in a joint process: A, B, and C. The joint costs are as follows: $\begin{array}{lr}\text { Direct materials } & £ 50,000 \\\text { Direct labour } & 20,000 \\\text { Overhead } & 40,000\end{array}$ The split-off values for A, B, and C are £80,000, £100,000, and £60,000, respectively. If management processes the three products beyond the split-off point, sales values for A, B, and C would increase to £150,000, £130,000, and £120,000, respectively. In order to process the products further, the company must incur separable costs of £14,000, £12,000, and £10,000 for products A, B, and C, respectively. James uses the sales-value-at-split-off method to allocate joint costs.
-Refer to Figure 6-8. Should James Ltd. process B further?

• A)Process further; profits will increase £30,000.
• B)Process further; profits will increase £98,000.
• C)Process further; profits will increase £18,000.
• D)Sell now.

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Definitions:

Return On Investment

A metric to assess the effectiveness or profit generated by an investment in comparison to its expense.

Net Operating Income

Net operating income is the total profit of a company derived from its regular, core business operations, excluding deductions for interest and taxes.

Average Operating Assets

Average operating assets are the mean value of the resources employed in a company's operations over a certain period, used to evaluate the efficiency of asset use in generating revenue.

Residual Income

The amount of income that an individual or company retains after all operating expenses and charges, including cost of capital, have been deducted.