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1398236

Shenista Inc. produces four products from common inputs with $95,000 in direct materials, $43,000 in direct labor, and $85,000 in overhead per quarter. Product revenues are Alpha $100,000, Beta $93,000, Gamma $30,000, and Delta $40,000. Management is considering processing Delta further to increase sales to $75,000, but this would require $15,400 in special equipment rent and $8,500 in additional costs per quarter.

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445 views3 pages

1398236

Shenista Inc. produces four products from common inputs with $95,000 in direct materials, $43,000 in direct labor, and $85,000 in overhead per quarter. Product revenues are Alpha $100,000, Beta $93,000, Gamma $30,000, and Delta $40,000. Management is considering processing Delta further to increase sales to $75,000, but this would require $15,400 in special equipment rent and $8,500 in additional costs per quarter.

Uploaded by

mohitgaba19
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Shenista Inc.

produces four products (Alpha, Beta, Gamma, and


Delta) from a common input. The joint costs for a typical quarter
follow:
Direct materials $95,000
Direct labor 43,000
Overhead 85,000
The revenues from each product are as follows: Alpha, $100,000;
Beta, $93,000; Gamma,  $30,000;  and  Delta, $40,000.
Management is considering processing Delta beyond the split-off
point, which would increase the sales value of Delta to $75,000.
However, to process Delta further means that the company must
rent some special equipment that costs $15,400 per quar- ter.
Additional materials and labor also needed will cost $8,500 per
quarter.

1.        What is the operating profit earned by the four products for
one quarter?

2.        Should the division process Delta further or sell it at split-off?


What is the effect of the decision on quarterly operating profit?
Answer 1
Alpha Beta Gamma Delta
Sales $ 100,000 $ 93,000 $ 30,000 $ 40,000
less: Joint Costs
Direct materials
Direct labor
Overhead
Operating Profit

Answer 2
The division Delta should be further processed as it results in increase in operating profit by $ 19,600
Alpha Beta Gamma Delta
Sales $ 100,000 $ 93,000 $ 30,000 $ 75,000
less: rent of special equipment $ 15,400
less: Joint Costs
Direct materials
Direct labor
Overhead
Operating Profit

Increase in Operating profit


($ 59,600 less $ 40,000)
Total
$ 263,000

$ 95,000
$ 43,000
$ 85,000
$ 40,000

Total
$ 298,000
$ 15,400

$ 95,000
$ 43,000
$ 85,000
$ 59,600

$ 19,600

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