Question
Chemicals costing $48,000 are mixed and heated, then a unique separation process then extracts the drug from the mixture. A batch yields a total of
Chemicals costing $48,000 are mixed and heated, then a unique separation process then extracts the drug from the mixture. A batch yields a total of 2,500 gallons of the chemicals. The first 2,200 gallons are sold for human use while the last 300 gallons, which contain impurities, are sold to veterinarians. The costs of mixing, heating, and extracting the drug amount to $281,900 per batch. The output sold for human use is pasteurized at a total cost of $127,600 and is sold for $640 per gallon. The product sold to veterinarians is irradiated at a cost of $21 per gallon and is sold for $460 per gallon.
In March, Garland, which had no opening inventory, processed one batch of chemicals. It sold 1,800 gallons of product for human use and 200 gallons of veterinarian product. Garland uses the net realizable value method for allocating joint production costs.
1. | How much in joint costs does Garland allocate to each product? |
2. | Compute the cost of ending inventory for each of Garland's products. |
3. | If Garland were to use the constant gross-margin percentage NRV method instead, how would it allocate its joint costs? |
4. | Calculate the gross margin on the sale of the product for human use in March under the constant gross-margin percentage NRV method. |
5. | Suppose that the separation process also yields 260 pints of a toxic byproduct. Garland currently pays a hauling company $5,600 to dispose of this byproduct. Garland is contacted by a firm interested in purchasing a modified form of this byproduct for a total price of $6,600. Garland estimates that it will cost about $20 per pint to do the required modification. Should Garland accept the offer? |
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