Problem:
(Sell or process further) Midwest Clothing produces three products (precut fabrics for hats, shirts, and pants) from a joint process. Joint cost is allocated on the basis of relative sales value at split-off. Rather than sell the products at split-off, the company has the option to complete each of the products. Information related to these products is shown below:
|
Hats
|
Shirts
|
Pants
|
Total
|
|
Number of units produced
|
5,000
|
8,000
|
3,000
|
16,000
|
|
Joint cost allocated
|
$87,000
|
?
|
?
|
$180,000
|
|
Sales values at split-off point
|
?
|
?
|
$40,000
|
$300,000
|
|
Additional costs of processing further
|
$13,000
|
$10,000
|
$39,000
|
$62,000
|
|
Sales values after all processing
|
150,000
|
$134,000
|
$105,000
|
$389,000
|
a. What amount of joint cost should be allocated to the Shirts and Pants products?
b. What are the sales values at split-off for Hats and Shirts?
c. Which products should be processed further? Show computations.
d. If 4,000 Shirts are processed further and sold for $67,000, what is gross profit on the sale?