Reference no: EM132571426

Question 1) GH Ltd. manufactures three main products from a common input in a joint processing operation. Joint processing costs up to the split-off point are as follows:

Direct materials $10,000

Direct labour 25,000

Supervisor's salary 40.000

Security 20,000

Custodian salaries 25,000

Utilities 30,000

The company allocates these costs to the joint products on the basis of their total sales at the split-off point. Each of the products may be sold at the split-off point or processed further. The additional processing costs and sales value after further processing for each product, on an annual basis, are:

                               Further                                  Sales Value

                    Sales Value      Processing          After Further

Product          at Split-off                 Costs             Processing

1030               $70,000                  $ 40,000          $100,000

1060                   20,000                     25,000            30,000

2010                      60,000                   5,000               70,000

The "Further Processing Costs" consist of variable and avoidable fixed costs.

Which product or products should be sold at the spilt-off point, and which product or products should be processed further? Show computations.

Question 2) GH Ltd. also provided the following information about a third product:

Sales $15,000

Variable costs 7,000

Traceable fixed costs 6,000

Common fixed costs 8,000

Operating loss ($6,000)

What would happen to GH Ltd.'s operating income if it decided not to produce this product?