Question

WP Corporation produces products X, Y, and Z from a single raw material input in a joint production process. Budgeted data for the next month is as follows:
Product X Product Y Product Z
Units produced 1,500 2,000 3,000
Per unit sales value at split-off 19.00 21.00 24.00
Added processing costs per unit $ 7.00 7.50 7.00
Per unit sales value if processed further $ 29.00 $ 29.00 $ 30.00
The cost of the joint raw material input is $149,000. Which of the products should be processed beyond the split-off point?

ProductX Product Y ProductX
A) Yes Yes No
B) No Yes No
C) Yes No Yes
D) No Yes Yes
Behrend Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Service Departments Operating Department
Personnel Support Prenatal Pediatrics
Departmental costs $29,200 $55,040 $242,050 $423,200
Employee hours 5,000 1,000 26,000 14,000
Space occupied 3,000 2,000 35,000 8,000

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to:

A) $441,260

B)$433,440

C) $443,660

D)$444,471

Answer 1

Answer:

The correct answer for (a) is option (a) and for (b) is option (c).

Explanation:

Revenue if processed further = Sales per unit - Processing cost per unit

a).

Product X = $29 - $7 = $22

Product Y = $29 - $7.50 = $21.50

Product Z = $30 - $7 = $23

Revenue increase=revenue if processed further-split off sales value

Product X= $22 - $19 = $3

Product Y= $21.50 - $21 = $.50

Product Z= $23 - $24= -1 or 0

Product X and Product Y should be processed beyond the split off points. So,option A is correct.

b).

Pediatrics department allocated personnel department cost = Pediatrics employee cost hour × Personnel department ÷ ( Pediatrics employee hours + Prenatal employee hours)

= 14,000 × $29,200 ÷ ( 14000 + 26000)

= 40,88,000,00 ÷ 40,000

= $10,220

Pediatrics department allocated support department cost = Pediatrics department space occupied × Support department cost ÷ (Pediatrics department space occupied + Prenatal department space occupied)

=8000 × $55,040 ÷ (8000 + 35000)

=$44,03,20,000 ÷ 43000

=$10,240

After the allocation of service total pediatric department cost= Pediatrics department allocated support department cost + Pediatrics department allocated personnel department cost + Pediatrics department cost

= $10,240 + $10,220 + $423,200

= $4,43,660.

According to the analysis option C is correct.