Cost Allocation—Joint Products and By-Product. 'Alderon Industries is a manufacturer of chemicals for vari¬ ous purposes. One of the processes used by Alderon produces SPL-3, a chemical used in swimming pools; PST- 4, a chemical used in pesticides; and RJ-5, a by-product that is sold to fertilizer manufacturers. Alderon uses the market value of its main products to allocate joint production costs, and the fifo inventory method to cost the main products. The by-product is inventoried at its market value less its disposal cost, and this value is used to reduce the joint production cost before allocation to the main products. LO5 Data regarding Alderon’s November operations are presented in the following table. During this month, Alderon incurred joint production cost of $1,702,000 in the manufacture of SPL-3, PST-4, and RJ-5.

SPL-3 PST-4 RJ-5 Finished goods inventory in gallons (November 1).

18,000 52,000 3,000 November sales ingallons.

650,000 325,000 150,000 November production ingallons.

700,000 350,000 170,000 Sales value per gallon atsplit-off.

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$ .70*

Additional processingcost.

$874,000

$816,000

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Final sales value pergallon.

$ 4.00

$ 6.00

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* Disposal costs of $ .10 per gallon, which are incurred in order to sell the product, have not been deducted to arrive at this sales value.

Required:

(1) Determine Alderon Industries’ allocation of joint production cost for November.

(2) Compute the cost assigned to the finished goods inventories for SPL-3, PST-4, and RJ-5 as of November 30.

(3) Alderon Industries has an opportunity to sell PST-4 at the split-off point for $3.80 per gallon. Prepare an analysis showing whether Alderon should sell PST-4 at the split-off point or continue to process this prod¬ uct further.