Question

Pet Products Inc. manufactures two products, cat bowls and dog bowls, from a joint process. Cat bowls are allocated 50% of the total joint costs of $20,000. There are 1,000 cat bowls produced and 1,000 dog bowls produced each year. Cat Bowls can be sold at the split-off point for $11 per unit, or they can be processed further into an extra fancy cat bowl for additional processing costs of $4,962 and sold for $14 each. What is the difference in operating income between processing the cat bowls further versus selling them off at the split-off point? If income is higher by processing the cat bowls further, input your number as a positive number. If income is lower by processing the cat bowls further, input your number as a negative number.

Answer 1

Answer:

The difference between the two operating income is $1,962

Explanation:

The operating income if cat bowls are sold at split-off point:

Revenue($11*1000)                  $11,000

Costs (50%*$20,000)             ($10,000)

Operating income                 $1,000

The operating income if cat bowls are processed further is shown  below:

Revenue ($14*1000)                                 $14,000

Cost at split off (50%*$20,000)              ($10,000)

Further processing cost                          ($4962)

Operating loss                                           ($962)

The difference in operating income in the two instances can be computed thus:

Operating income when sold at split-off point less operating income when cat bowls are further processed

$1000-(-$962)

=$1000+$962

=$1,962