Exam 12: Decision Making: Relevant Costs and Benefits

Stowers Corporation manufactures products J, K, and L in a joint process. The company incurred $480,000 of joint processing costs during the period just ended and had the following data that related to production: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Sales Values and Additional }$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Cost if Processed I evond Split-off }$ \ 400,000 \ 550,000 \ 130,000 350,000 540,000 240,000 850,000 975,000 118,000 An analysis revealed that all costs incurred after the split-off point are variable and directly traceable to the individual product line. Required: A. If Stowers allocates joint costs on the basis of the products' sales values at the split-off point, what amount of joint cost would be allocated to product J? B. If production of J totalled 50,000 gallons for the period, determine the relevant cost per gallon that should be used in decisions that explore whether to sell at the split-off point or process further? Briefly explain your answer. C. At the beginning of the current year, Stowers decided to process all three products beyond the split-off point. If the company desired to maximize income, did it err in regards to its decision with product J? Product K? Product L? By how much?

Which of the following statements regarding costs and decision-making is correct?

Occidental Company is studying whether to drop a product because of ongoing losses. Costs that would be relevant in this situation would include variable manufacturing costs as well as: