(Physical measure allocation) Gruenfeld Chemical Company uses a joint process to manufacture two chemicals. During October 1997, the company incurred $10,000,000 of joint production cost in producing 12,000 tons of Chemical A and 8,000 tons of Chemical B (a ton is equal to 2,000 pounds). Joint cost incurred by the company is allocated on the basis of tons of chemicals produced. Gruen¬ feld Chemical is able to sell Chemical A at the split-off point for $.50 per pound, or the chemical can be processed further at a cost of $1,500 per ton and then sold for $1.25 per pound. There is no opportunity for the company to further process Chemical B.

a. What amount of joint cost is allocated to Chemical A and to Chemical B?

b. If Chemical A is processed further and then sold, what is the incremental effect on Gruenfeld Chemical Company’s net income? Should the additional processing be performed?

LO1