Alpha Chemicals Ltd.

Scenario: Joint Cost Allocation

Product Details:

• Product A:
  • Sales Value at Split-off: $100,000
  • Separate Costs after Split-off: $60,000
  • Joint Costs Incurred: $40,000

• Product B:
  • Sales Value at Split-off: $120,000
  • Separate Costs after Split-off: $80,000
  • Joint Costs Incurred: $40,000

Requirements:

1. Joint Cost Allocation:
   • Allocate the joint costs of $40,000 between Product A and Product B using the sales value at split-off method. Prepare a table showing the allocation of joint costs and the resulting costs after split-off for each product.

1. Balance Sheet Impact:
   • Prepare a balance sheet for Alpha Chemicals Ltd. after allocating the joint costs to Product A and Product B. Include the inventory valuation of Product A and Product B after allocation.

1. Financial Reporting Impact:
   • Discuss how the allocation of joint costs affects the reported inventory values and overall financial position of Alpha Chemicals Ltd. Explain the implications for financial statement users.

1. Strategic Decision Making:
   • Analyze whether Alpha Chemicals Ltd. should continue producing both Product A and Product B based on their allocated costs and profitability. Provide a recommendation supported by financial analysis.