2.Joint production decisions

Grassy Fertilizer manufactures two lines of garden grade fertilizer as part of a joint production process: GF10 and GF20. Joint costs up to Grassy's split-off point total $85,000 per batch. These joint costs are allocated to GF10 and GF20 in proportion to their relative sales values at the split-off point of $40,000 and $60,000, respectively.

Both lines of garden grade fertilizer can be further processed into commercial grade fertilizer. The following table summarizes the costs and revenue associated with additional processing of GF10 and GF20:

Additional Final Selling Price

Processing Cost per batch of commercial grade fertilizer

GF10 $18,000 $67,000

GF20 38,000 97,000

(a) The $85,000 in joint costs should be allocated to each product as follows:

GF10 $____________, GF20 $____________

(b) Which product (GF10 or GF20) would result in a net decrease in operating income if processed into a commercial grade fertilizer? ____________

(c) Which product (GF10 or GF20) would result in a net increase in operating income if processed into a commercial grade fertilizer? ____________