Nor-Pharma AS manufactures three joint products from a joint process: Altox, Lorex and Hycol.

Data regarding these products for the fiscal year ended 31 May 2022 are as follows:

The joint production cost up to the split-off point where Altox, Lorex and Hycol become separable products is €1 800 000 (which includes the €17 500 disposal costs for Dorzine as described below).
The president of Nor-Pharma, Gro Seljord, is reviewing an opportunity to change the way in which these three products are processed and sold. Proposed changes for each product are as follows:

The joint process currently used by Nor-Pharma also produces 50 000 units of Dorzine, a hazardous chemical waste product. The company pays €0.35 per unit to dispose of the Dorzine properly.
Nor-Chem, AS, is interested in using the Dorzine as a solvent; however, Nor-Pharma would have to refine the Dorzine at an annual cost of €43 000. Nor-Chem would purchase all the refined Dorzine produced by Nor-Pharma and is willing to pay €0.75 for each unit.
Instructions Form groups of two or more students to complete the following requirements.
Required 1 Allocate the €1 800 000 joint production cost to Altox, Lorex and Hycol using the estimated NRV method.
2 Identify which of the three joint products Nor-Pharma should sell at the split-off point in the future and which of the three main products the company should process further in order to maximise profits. Support your decisions with appropriate calculations.
3 Assume that Nor-Pharma has decided to refine the waste product Dorzine for sale to Nor-Chem and will treat Dorzine as a by-product of the joint process in the future.
a Evaluate whether Nor-Pharma made the correct decision regarding Dorzine. Support your answer with appropriate calculations.
b Explain whether the decision to treat Dorzine as a by-product will affect the decisions reached in requirement 2.

The joint process currently used by Nor-Pharma also produces 50 000 units of Dorzine, a hazardous chemical waste product. The company pays €0.35 per unit to dispose of the Dorzine properly.
Nor-Chem, AS, is interested in using the Dorzine as a solvent; however, Nor-Pharma would have to refine the Dorzine at an annual cost of €43 000. Nor-Chem would purchase all the refined Dorzine produced by Nor-Pharma and is willing to pay €0.75 for each unit.
Instructions Form groups of two or more students to complete the following requirements.
Required

1 Allocate the €1 800 000 joint production cost to Altox, Lorex and Hycol using the estimated NRV method.
2 Identify which of the three joint products Nor-Pharma should sell at the split-off point in the future and which of the three main products the company should process further in order to maximise profits. Support your decisions with appropriate calculations.
3 Assume that Nor-Pharma has decided to refine the waste product Dorzine for sale to Nor-Chem and will treat Dorzine as a by-product of the joint process in the future.
a Evaluate whether Nor-Pharma made the correct decision regarding Dorzine. Support your answer with appropriate calculations.
b Explain whether the decision to treat Dorzine as a by-product will affect the decisions reached in requirement 2.

Transcribed Image Text:

Units produced Selling price per unit at split-off Separable costs Final selling price per unit Altox 170 000 3.50 Lorex Hycol 500 000 330 000 2.00 1 400 000 5.00