Joint Product Cost Allocation—Average Unit Cost and Market Value Methods. Sage Products Company pro¬ duces three products from a joint source. A single raw material is introduced into Process I from which prod¬ ucts A, B, and C emerge. Product A is considered to be a by-product and is sold immediately after split-off. Products B and C are processed further in Process II and Process III, respectively, before they are sold as Butine and Cantol.

Production costs for February are as follows: LO5 Process I (24 000 kg of rawmaterials). $ 590,000 ProcessII. 580,000 ProcessIII. 720,000 Total productioncost. $1,890,000 The number of units (kg) of product produced and sold in February is as follows:

Process I Process il Process III Units Sold ProductA. 4 000 kg — — 4 000 kg ProductB. 10 000 kg 10 000 kg — 9 000 kg

(Butine)

ProductC. 10 000 kg — 10 000 kg 9 500 kg

(Cantol)

The average price per unit sold in February for each of the products is as follows:

ProductA. $15 per kg Butine. 130 Cantol. 120 There were no inventories of intermediate products B and C at the beginning or end of February and there was no waste or spoilage in any of the processes. The by-product is not accounted for separately; instead, rev¬ enue from sales of the by-product is treated as a deduction from joint cost.

Required:

(1) Calculate the cost of the finished goods inventories if the average unit cost method of joint cost allocation is used.

(2) Calculate the value of cost of goods sold if the market value method of joint cost allocation is used. Round allocated joint cost to the nearest one thousand dollars.

(3) The company controller argues that the market value method of allocation is the most accurate way to allo¬

cate joint cost. The president replies that the average unit cost method is simpler and easier to understand, especially if he has to make a decision about whether to drop a product or continue to process it. The con¬ troller claims that using the market value method to analyze a drop or confinue decision would be better. Respond to both the president’s and controller’s comments, and briefly explain the reasons for allocating joint cost.