Investment and Split-off Point

Topics: Investment, Rate of return, Interest Pages: 2 (517 words) Published: September 30, 2012
Exercise 12-7 (15 minutes)
| | Division|
| | Alpha| | Bravo| | Charlie|
Sales| | \$4,000,000| | | \$11,500,000| *| \$3,000,000| | Net operating income| | 160,000| | | 920,000| *| 210,000| *| Average operating assets| | 800,000| *| 4,600,000| | | 1,500,000| | Margin| | 4| %| *| 8| %| | 7| %*|

Turnover| | 5| *| | 2.5| | | 2| |
Return on investment (ROI)| | 20| %| | 20| %*| | 14| %*|

Note that Divisions Alpha and Bravo employ different strategies in order to obtain the same 20 percent return. Division Alpha has a low margin and a high turnover, whereas Division Bravo has just the opposite.

*Given.

EXERCISE 12–7 Sell or Process Further [LO7]
Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total \$100,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: product X, \$50,000; product Y, \$90,000; and product Z, \$60,000. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:

Required:
Which product or products should be sold at the split-off point, and which product or products should be processed further? Show computations. (Garrison 559)
Garrison, R.. Managerial Accounting, 14th Edition. McGraw-Hill Learning Solutions, 2012. <vbk:0077624319#outline(12.16)>.

Product:XYZ
Sale value at the split off point\$50,000\$90,000\$60,000
Before processing cost \$85,000\$130,000\$72,000

Sales Value after further Processing\$ 80,000\$150,000\$75,000 Less Value...

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