Exercise 7-7 (10 minutes)
Product X
Product Y
Product Z
Sales value after further processing ..
$80,000
$150,000
$75,000
Sales value at split-off point ………….
50,000
90,000
60,000
Incremental revenue ……………………
30,000
60,000
15,000
Cost of further processing …………….
35,000
40,000
12,000
Incremental profit (loss) ……………….
$(5,000)
20,000
3,000
Products Y and Z should be processed further, but not Product X.
Exercise 7-15 (10 minutes)
Contribution margin lost if the Bath Department is dropped:
Lost from the Bath Department ………….……………………..
$700,000
Lost from the Kitchen Department (10% × $2,400,000) …
240,000
Total lost contribution margin ……………………………………..
940,000
Less avoidable fixed costs ($900,000 – $370,000) …………..
530,000
Decrease in overall net operating income ……………………...
$410,000