Which product or products should sold at the split-off point

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Question - Hoky Company manufactures four products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $60480000, per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split -off point. Unit selling prices and total output at the split-off point are as follows:

Product Name

Selling Price at split-off (per gallons)

Quartely Output (gallons)

Product A

$280

60.000

Product B

$140

80.000

Product C

$420

40.000

Product D

$560

100.000

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

Product Name

Additional Processing Costs

Selling Price after further processing (per gallon)

Product A

$7.056.000

$378

Product B

$6.720.000

$210

Product C

$4.032.000

$504

Product D

$13.440.000

$672

Required -

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

b) How does the relevant cost analysis model differ for factoring and service company?

c) How do strategic considerations impact the effective use of relevant cost analysis?

Reference no: EM132587212

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