Bowen Company Produces Products P,Q,and R from a Joint Production

question 50

Essay

Bowen Company produces products P,Q,and R from a joint production process.Each product may be sold at the split-off point or be processed further.Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced.Data for Bowen's operations for the current year are as follows:

$\begin{array}{lrrr}&&\text {Allo cated Joint }&\text { Sales Value}\\\text {Product }&\text { Units Produced}&\text { Production Cost}&\text { at Split-off}\\\mathrm{P} & 4,000 & \$ 28,000 & \$ 38,000 \\\mathrm{Q} & 7,000 & 49,000 & 47,000 \\\mathrm{R} & 2,000 & 14,000 & 16,000\end{array}$

Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000.

Required:

Which products should be processed beyond the split-off point?

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Definitions:

Period Costs

Costs that are expensed in the period in which they are incurred, rather than being capitalized.

Reportable Segment

A component of a business that earns revenues and incurs expenses, and for which separate financial information is available and regularly reviewed by the entity's chief operating decision-maker in deciding how to allocate resources and assess performance.

Operating Segment

A component of a business that engages in business activities from which it may earn revenues and incur expenses, and for which discrete financial information is available.

Asset Group

A collection of assets that share similar characteristics and are accounted for together in financial reporting.