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

question 52

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:
$\begin{array}{|l|r|r|r|}\hline & & \text { Allocated Joint } &{\text { Sales Value }} \\\hline \text { Product } & \text { Units Produced } & \text { Production Cost } & \text { At Split-off } \\\hline \mathrm{P} & 4,000 & \$ 28,000 & \$ 38,000 \\\hline \mathrm{Q} & 7,000 & 49,000 & 47,000 \\\hline \mathrm{R} & 2,000 & 14,000 & 16,000 \\\hline\end{array}$
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?
$\begin{array}{|l|r|r|r|}\hline& \mathrm{P} & \mathrm{Q} & \mathrm{R} \\\hline \text { Sales value after further processing } & \$ 50,000 & \$ 65,000 & \$ 25,000 \\\hline \text { Sales value at split-off } & 38,000 & 47,000 & 16,000 \\\hline \text { Added sales value from processing } & \$ 12,000 & \$ 18,000 & \$ 9,000 \\\hline \text { Added processing costs } & 10,000 & 35,000 & \underline{6,000} \\\hline \text { Net gain (loss) from further processing } & \$ 2,000 & \$(17,000) & \$ 3,000 \\\hline\end{array}$

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