Castille Industries produces chemicals for the swimming pool industry. In one joint process, 10,000 litres of GSX are processed into 7000 litres of xenolite and 3000 litres of banolide. The cost of the joint process, including the GSX, is $40,000. Castille allocates $28,000 of the joint cost to the xenolite and $12,000 of the cost of banolide. The 3000 litres of banolide can be sold at the split-off point for $5000, or they can be processed further into a product called kitrocide. The sales value of 3000 litres of kitrocide is $20,000 and the additional processing cost is $16,200.

Required:

1. Castilles managing director has asked your consulting firm to make a recommendation as to whether the banolide should be sold at the split-off point or processed further. Show the calculation and Write a letter providing an analysis and a recommendation.