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Free CMA Exam Braindumps (page: 33)

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N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these . products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column.


Assuming that all products were sold at the split-off point during October, the gross profit from the production process would be

  1. $13,000
  2. $10,000
  3. $8,625
  4. $3,000

Answer(s): D

Explanation:

If all products are sold at split-off, the gross profit is computed as follows:
Product A (1,000 x $4.00) $ 4,000
Product B (2,000 x $2.25) 4,500
Product C (1,500 x $3.00) 4,500
Total sales $13,000
Joint costs (10,000)
Gross profit $ 3,000



View Related Case Study

N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these . products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column.


Assuming sufficient demand exists, N-Air could sell all the products at the prices previously mentioned at either the split-off point or after further processing. To maximize its profits, N-Air Corporation should

  1. Sell product A at split-oft and perform additional processing on products B and C.
  2. Sell product B at split-oft and perform additional processing on products C and A.
  3. Sell product C at split-off and perform additional processing on products A and B.
  4. Sell products A, B, and C at split-off.

Answer(s): C

Explanation:

To maximize profits, it must be determined whether each product's incremental revenues will exceed its incremental costs. Joint costs are irrelevant because they are sunk costs.


It is most profitable for N-Air to process products A and B further and to sell product C at the split-off point.



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Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90,000. Concerning AM- 12, which one of the following alternatives is most advantageous?

  1. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $3.00, which covers the joint costs.
  2. Whitehall should continue to sell at split-off unless Flank offers at least $4.50 per unit after further processing, which covers Whitehall's total costs.
  3. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.
  4. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.25, which maintains the same gross profit percentage.

Answer(s): C

Explanation:

The unit price of the product at the split-off point is known to be $3.50, so the joint costs are irrelevant. The additional unit cost of further processing is $1.50 ($90,000 ÷ 60,000 units). Consequently, the unit price must be at least $5.00 ($3.50 opportunity cost + $1 .50)



View Related Case Study

Whitehall Corporation produces chemicals used in the cleaning industry During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-i 2 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90000.Assume that Whitehall Corporation agreed to sell AM-12 to Flank Corporation for $5.50 per unit after further processing. During the first month of production, Whitehall sold 50,000 units with 10,000 units remaining in inventory at the end of the month. With respect to AM-12, which one of the following statements is true?

  1. The operating profit last month was $50,000, and the inventory value is $15,000.
  2. The operating profit last month was $50,000, and the inventory value is $45,000.
  3. The operating profit last month was $125,000, and the inventory value is $30,000.
  4. The operating profit last month was $200,000, and the inventory value is $30,000.

Answer(s): B

Explanation:

Joint costs are allocated based on units of production. Accordingly, the unit joint cost allocated to AM-12 is $3.00 [$300,000 + (60,000 units of AM-12 + 40,000 units of BM-
36)]. The unit cost of AM-12 is therefore $4.50 [$3.00 joint cost + ($90,000 additional cost + 60,000 units)]. Total inventory value is $45,000 (10,000 units x $4.50), and total operating profit is $50,000 [50,000 units sold x ($5.50 unit price -- $4.50 unit cost)]






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