Q - Process Further Scarce Resource

ACC223
Sell or Process Further/Profitable Use of Scarce Resource
1. Julius International produces weekly 15,000 units of Product JI and 30,000 units of JII for which
P800,000 common variable costs are incurred. These two products can be sold as is or processed further.
Further processing of either product does not delay the production of subsequent batches of the joint
products. Below are some information:
JI JII
Unit selling price without further processing P24 P18
Unit selling price with further processing P30 P22
Total separate weekly variable costs of further processing P100,000 P90,000
To maximize Julius’ manufacturing contribution margin, the total separate variable costs of further
processing that should be incurred each week are
Use the following to answer questions 2-3:

Paulsen Company makes two products, W and P, in a joint process. At the split-off point, 50,000 units of
W and 60,000 units of P are available each month. Monthly joint production costs are P290,000. Product
W can be sold at the split-off point for P5.60 per unit. Product P either can be sold at the split-off point for
P4.75 per unit or it can be further processed and sold for P7.20 per unit. If P is processed further,
additional processing costs of P3.10 per unit will be incurred.
2. If P is processed further and then sold, rather than being sold at the split-off point, the change in
monthly net operating income would be a:
3. What would the selling price per unit of Product P need to be after processing in order for Paulsen
Company to

Dockham Company makes two products from a common input. Joint processing costs up to the split-off
point total P33,600 a year. The company allocates these costs to the joint products on the basis of their
total sales values at the split-off point. Each product may be sold at the split-off point or processed
further. Data concerning these products appear below:
Product X Product Y Total

Allocated joint processing costs .................. P14,000 P19,600 P33,600
Sales value at split-off point ...................... P20,000 P28,000 P48,000
Costs of further processing ........................ P26,300 P24,500 P50,800
Sales value after further processing ............ P50,200 P48,600 P98,800
4. What is the net monetary advantage (disadvantage) of processing Product X beyond the split-off
point?
5. What is the net monetary advantage (disadvantage) of processing Product Y beyond the split-off
point?
6. What is the minimum amount the company should accept for Product X if it is to be sold at the split-
off point?
7. Marley Company makes three products (X, Y, & Z) with the following characteristics:
Product
X Y Z
Selling price per unit ...................... P10 P15 P20
Variable cost per unit...................... P6 P10 P10
Machine hours per unit ................... 2 4 10
The company has a capacity of 2,000 machine hours, but there is virtually unlimited demand for each
product. In order to maximize total contribution margin, how many units of each product should the
company produce?
Broyles Company makes four products in a single facility. These products have the following unit
product costs:
Product
A B C D
Direct materials ........................................ P10.70 P 5.40 P 5.10 P 7.20
Direct labor .............................................. 19.10 21.40 29.00 34.40
Variable manufacturing overhead................ 1.20 1.50 1.80 1.60
Fixed manufacturing overhead.................... 22.40 16.00 15.00 17.60
Unit product cost ...................................... P53.40 P44.30 P50.90 P60.80
Additional data concerning these products are listed below.
Product
A B C D
Grinding minutes per unit .......................... 2.20 1.20 1.70 1.80
Selling price per unit ................................. P65.40 P58.50 P70.70 P76.20
Variable selling cost per unit ...................... P3.60 P3.80 P2.00 P3.40
Monthly demand in units............................ 1,000 4,000 1,000 4,000
The grinding machines are potentially the constraint in the production facility. A total of 14,400
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
8. How many minutes of grinding machine time would be required to satisfy demand for all four
products?
9. Which product makes the LEAST profitable use of the grinding machines?
11. Which product makes the MOST profitable use of the grinding machines?
12. Up to how much should the company be willing to pay for one additional hour of grinding machine
time if the company has made the best use of the existing grinding machine capacity? (Round off to
the nearest whole cent.)
The Madison Company produces three products with the following costs and selling prices:
Product
A B C
Selling price per unit ...................... P15 P20 P20
Variable cost per unit ..................... P8 P10 P12
Direct labor hours per unit .............. 1 1.5 2
Machine hours per unit ................... 3.5 2 2.5
13. If Madison has a limit of 10,000 direct labor hours but no limit on machine hours, then the three
products should be produced in the order:
14. If Madison has a limit of 15,000 machine hours but no limit on direct labor hours, then the three
products should be produced in the order:

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ACC223

Sell or Process Further/Profitable Use of Scarce Resource

Use the following to answer questions 2-3:

Use the following to answer questions 4-6:

Product X Product Y Total

Direct labor is a variable cost in this company.

Use the following to answer questions 13-14:

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