Arcadia, SA, Uses a Joint Process to Produce Products W

question 33

Essay

Arcadia, SA, uses a joint process to produce Products W, X, Y, Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are £200,000. Other relevant data are as follows: $\begin{array}{ccc}&\text { Sales Value }&\text { Additional }&\text {Sales Value of }\\\text { Product } & \text { at Split-off }& \text { Processing Costs } &\text { Final Froduct }\\W&£ 40,000 & £ 24,000 & £ 70,000 \\X&16,000 & 10,000 & 20,000 \\ Y&20,000 & 10,000 & 48,000 \\ Z&24,000 & 16,000 & 36,000 \\&£ 100,000 &£ 60,000& £174,00 \\\end{array}$
a.Determine which products should be processed further.
b.How will processing each product further affect profits?

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Definitions:

Maturity

The date on which a loan or bond comes due and the principal must be repaid or the date upon which an investment reaches its full value.

Adjusting Entry

An accounting entry made at the end of a period to allocate income and expenditure to the correct accounting period.

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or disposal, reflecting the net cash inflow that would be received if the goods were sold.

Bad Debt Expense

An expense reported on the income statement, representing the estimated amount of receivables that will not be collected.