Quality Chemical manufactures three chemicals for industrial and retail customers. The largest volume product, S-210, is a sweetener used in the preparation of processed foods; the second, H-35, is used in the manufacture of commercial and household cleaning agents; and the third, J-23, is a by-product that can be used in the manufacture of pesticides. The byproduct is inventoried at its net realizable value, which is used to reduce the joint production costs before they are allocated to the main products.

Data regarding Quality Chemical's operations for the month of July follow. During this month, Quality Chemical incurred joint production costs of $1,400,000 in the manufacture of its three products.

Required
1. Determine Quality Chemical's allocation of joint production costs for the month of July. Be sure to present appropriate supporting calculations.
2. Prepare an analysis showing whether Quality Chemical should sell H-35 at the split-off point or process further.
3. As a production supervisor for Quality Chemical, you have learned that small quantities of the critical chemical compound in H-35 might be present in S-210. What should you do?

Transcribed Image Text:

S-210 H-35 J-23Total 600,000 225,000 20,000 845,000 660,000 225,000 30,000 915,000 July sales in gallons July production in gallons Sales price per gallon at split-off Separable processing costs Sales price per gallon after separable processing S5.85 S 3.25 4.00 0.70 $1,233,000 $525,000 S 6.25 S