Elsa Products processes Chem-Z into two products: Chem-A and Chem-B. Chem-Z costs $42,000 per batch. The joint process produces 11,250 units of Chem-A with a market value of $135,000, and 20,000 units of Chem-B with a market value of $33,750. The conversion cost of the joint process is $13,400 per batch. Elsa Products allocates joint costs using the physical quantities method. The company never holds any inventory.

Required

a. What cost will be the reported (total, not unit) profit for each product using the current method for allocating joint costs?

b. If the costs of the joint process are allocated on the basis of the net realizable value of the products, what cost will be the reported (total, not unit) profit for each product?

c. How much will profit at Elsa Products increase or decrease if the company switches to the net realizable value method for allocating joint process costs? Explain.