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In a joint processing operation Nolan Company manufactures two herbicides (weed killers) from a common chemical input called XJ6. Joint processing costs up to the
In a joint processing operation Nolan Company manufactures two herbicides (weed killers) from a common chemical input called XJ6. Joint processing costs up to the split off point total $80,000 per year. The two herbicides are named WeedGone and LushGrass. One hundred kilograms of XJ6 will produce 1 litre of WeedGone and 2 kilograms of LushGrass. The company is able to process 100,000 kg of XJ6 every day. The company can further refine WeedGone into two pesticides (rodent killers) named NORAT and NOMOUSE. LushGrass can be processed into a vegetation killer called DeadGrass. One hundred litres of WeedGone will produce 40kg of NORAT and 30 lites of NOMOUSE. It takes 5kg of LushGrass to make 10 litres of DeadGrass. Current selling prices are as follows: WeedGone $15 per litre LushGrass $25 per kilogram NORAT $16 per kilogram NOMOUSE $25 per litre DeadGrass $15 per litre The cost to process LushGrass into DeadGrass is 25 cents for every kilogram of LushGrass that is processed into DeadGrass. The cost to process each litre of WeedGone, into NORAT and NOMOUSE, is 75cents per litre of WeedGone. REQUIRED: (a) Show all calculations and determine the effect on total operating income to determine what products should be produced that will give the largest total operating income possible. (18 marks) (b) Other than the financial considerations calculated in part (a), provide TWO non financial issues that could influence the decision of Nolan Company. (2 marks)
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