Oury Company’s Chemicals X12 and YR8 are joint products; 20,000 gallons of X12 and 40,000 gallons of YR8 were produced. Their cost for April up to the point of separation was

$350,000. No costs were incurred beyond that point. The selling price was $8 for X12 and

$6 for YR8.

Required:

a. Determine the allocation of costs between joint products using the net market (realizable)

method.

b. If, instead, the sales price for X12 is $2.50 per gallon and X12 is treated as a by-product and the sales price for YR8 remains at $6, determine the allocation of costs between the two products. The company follows the approach of deducting the market value of the by-products produced from production costs. Would you advise management to continue production using these market conditions?