Benjamin Signal Company produces products R, J, and C from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $92,000 per year are allocated to the products based on the relative number of units produced. Data for Benjamin’s operations for the current year are as follows:
Product R can be processed beyond the split-off point for an additional cost of $26,000 and can then be sold for $105,000. Product J can be processed beyond the split-off point for an additional cost of $38,000 and can then be sold for $117,000. Product C can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000.
Which products should be processed beyond the split-off point? (10 marks – show your work)
Q3. Madison Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Selected information on the two machines is given below:
Ignore income taxes and the time value of money in this problem.
Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years. (10 marks)
Be careful with depreciation in this question. You are looking at the decision in terms of cashflows rather than traditional accounting expense recording. Depreciation is designed to recover, over time, the cash expended for an asset purchase.
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