7-46 Joint Products; By-Products (Appendix) Multiproduct Corporation is a chemical manufacturer

that produces two main products (Pepco1 and Repke3) and a by-product (SE5) from a joint process.

If Multiproduct had the proper facilities, it could process SE-5 further into a main product. The

ratio of output quantities to input quantity of direct materials used in the joint process remain consistent

with the processing conditions and activity level.

Multiproduct currently uses the physical measure method of allocating joint costs to the main

products. The by-product is inventoried at its net realizable value, which is used to reduce the joint

production costs before they are allocated to the main products.

Jim Simpson, Multiproducts controller, wants to implement the sales value at split-off method

of joint cost allocation. He believes that inventory costs should be based on each products ability to

contribute to the recovery of joint production costs. Multiproduct uses an asset recognition approach

in accounting for by-products.

Data regarding Multiproducts operations for November are presented in the following report. The

joint costs of production totaled $2,640,000 for November.

Main Products

By-Product

Pepco1 Repke3 SE5

November sales in gallons 800,000 700,000 200,000

November production in gallons 900,000 720,000 240,000

Sales price per gallon at split-off point $2.00 $1.50 $0.55*

Separable costs after split-off $1,000,000 $420,000

Final sales price per gallon $5.00 $4.00

*Selling costs of 5 cents per gallon are incurred to sell the by-product.

Required

1. Describe the sales value at split-off method and explain how it would accomplish Jims objective.

2. Assuming Multiproduct adopts the sales value at split-off method for internal reporting purposes, calculate

the allocation of the joint production costs for November.

3. Multiproduct plans to expand its production facilities to further process SE-5 into a main product.

Determine the allocation of the joint production costs for November if SE-5 were considered a main

product rather than a by-product.

(CMA Adapted)