Case 17-36 Comprehensive Case on Joint Cost Allocation (LO 17-4, 17-5)

Valdosta Chemical Company manufactures two industrial chemical products in a joint process. In May, 16,000 gallons of input costing $65,000 were processed at a cost of $155,000. The joint process resulted in 12,000 pounds of Resoline and 4,000 pounds of Krypto. Resoline sells for $25 per pound, and Krypto sells for $50 per pound. Management generally processes each of these chemicals further in separable processes to produce more refined chemical products. Resoline is processed separately at a cost of $7 per pound. The resulting product, Resolite, sells for $42 per pound. Krypto is processed separately at a cost of $12 per pound. The resulting product, Kryptite, sells for $57 per pound.

Required:

2-a. Allocate the companys joint production costs for May using the physical-units method.

2-b. Allocate the companys joint production costs for May using the relative-sales-value method.

2-c. Allocate the companys joint production costs for May using the net-realizable-value method.

3-a. Valdostas management is considering an opportunity to process Kryptite further into a new product called Omega. The separable processing will cost $47 per pound. Packaging costs for Omega are projected to be $8 per pound, and the anticipated sales price is $100 per pound. Calculate the incremental profit or loss from processing Kryptite into Omega.

3-b. Should Kryptite be processed further into Omega?