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a. Prepare a per unit analysis of the differential costs. Briefly
explain whether Riggs should make or buy the sails.
b. If Riggs suddenly finds an opportunity to rent out the unused
capacity of its factory for $77,000 per year, would your answer to
part (a) change? Briefly explain.
E7-11
Kirk Minerals processes materials extracted from mines. The most
common raw material that it processes results in three joint products:
Spock, Uhura, and Sulu. Each of these products can be sold as is, or
each can be processed further and sold for a higher price. The company
incurs joint costs of $180,000 to process one batch of the raw material
that produces the three joint products. The following cost and sales
information is available for one batch of each product.
Sales Value at
Sales Value of
Split-Off Point
Process Further
Processed
Allocated Joint Costs Cost to
Product
Spock
$300,000 $210,000 $40,000 $110,000
Uhura
400,000 300,000 60,000 85