Case 17-36 Comprehensive Case on Joint Cost Allocation (LO 17-4, 17-5)
Valdosta Chemical Company manufactures two industrial chemical products in a joint process. In May, 16,000 gallons of input costing $65,000 were processed at a cost of $155,000. The joint process resulted in 12,000 pounds of Resoline and 4,000 pounds of Krypto. Resoline sells for $25 per pound, and Krypto sells for $50 per pound. Management generally processes each of these chemicals further in separable processes to produce more refined chemical products. Resoline is processed separately at a cost of $7 per pound. The resulting product, Resolite, sells for $42 per pound. Krypto is processed separately at a cost of $12 per pound. The resulting product, Kryptite, sells for $57 per pound.
Required:
2-a. Allocate the companyâs joint production costs for May using the physical-units method.
2-b. Allocate the companyâs joint production costs for May using the relative-sales-value method.
2-c. Allocate the companyâs joint production costs for May using the net-realizable-value method.
3-a. Valdostaâs management is considering an opportunity to process Kryptite further into a new product called Omega. The separable processing will cost $47 per pound. Packaging costs for Omega are projected to be $8 per pound, and the anticipated sales price is $100 per pound. Calculate the incremental profit or loss from processing Kryptite into Omega.
3-b. Should Kryptite be processed further into Omega?
Case 17-36 Comprehensive Case on Joint Cost Allocation (LO 17-4, 17-5)
Valdosta Chemical Company manufactures two industrial chemical products in a joint process. In May, 16,000 gallons of input costing $65,000 were processed at a cost of $155,000. The joint process resulted in 12,000 pounds of Resoline and 4,000 pounds of Krypto. Resoline sells for $25 per pound, and Krypto sells for $50 per pound. Management generally processes each of these chemicals further in separable processes to produce more refined chemical products. Resoline is processed separately at a cost of $7 per pound. The resulting product, Resolite, sells for $42 per pound. Krypto is processed separately at a cost of $12 per pound. The resulting product, Kryptite, sells for $57 per pound.
Required:
2-a. Allocate the companyâs joint production costs for May using the physical-units method.
2-b. Allocate the companyâs joint production costs for May using the relative-sales-value method.
2-c. Allocate the companyâs joint production costs for May using the net-realizable-value method.
3-a. Valdostaâs management is considering an opportunity to process Kryptite further into a new product called Omega. The separable processing will cost $47 per pound. Packaging costs for Omega are projected to be $8 per pound, and the anticipated sales price is $100 per pound. Calculate the incremental profit or loss from processing Kryptite into Omega.
3-b. Should Kryptite be processed further into Omega?
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Related questions
| Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $97,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows: |
| Product | Selling Price | Quarterly Output | ||||
| A | $ | 5 | per pound | 10,000 | pounds | |
| B | $ | 6 | per pound | 15,000 | pounds | |
| C | $ | 16 | per gallon | 4,000 | gallons | |
| Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below: |
| Product | Additional Processing Costs | Selling Price | ||||||||||
| A | $ | 45,000 | $ | 8 | per pound | |||||||
| B | $ | 36,000 | $ | 11 | per pound | |||||||
| C | $ | 14,000 | $ | 20 | per gallon | |||||||
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Dorsey Company manufactures three products from a common inputin a joint processing operation. Joint processing costs up to thesplit-off point total $91,000 per quarter. The company allocatesthese costs to the joint products on the basis of their relativesales value at the split-off point. Unit selling prices and totaloutput at the split-off point are as follows:
| Product | Selling Price | Quarterly Output |
| A | $3 per pound | 19,000 pounds |
| B | $4 per pound | 24,000 pounds |
| C | $11 per gallon | 6,000 gallons |
Each product can be processed further after thesplit-off point. Additional processing requires no specialfacilities. The additional processing costs (per quarter) and unitselling prices after further processing are given below:
| Product | Additional Processing Costs | Selling Price |
| A | $40,000 | $4 per pound |
| B | $38,000 | $7 per pound |
| C | $14,250 | $14 per gallon |
Required:
Compute the incremental profit (loss) for each product.
Product A | Product B | Product C | |
Selling price after further processing | |||
Selling price at the split-off point | |||
Incremental revenue per pound or gallon | |||
Total quarterly output in pounds or gallons | |||
Total incremental revenue | |||
Total incremental processing costs | |||
Total incremental profit or loss |
Which product or products should be sold at the split-offpoint?
Product A
Product B
Product C
Which product or products should be processed further? (You mayselect more than one answer.
Product A
Product B
Product C
