Inorganic Chemicals (IC) processes salt into various industrial products. In July 2014, IC incurred joint costs of $100,000 to purchase salt and convert it into two products: caustic soda and chlorine. Although there is an active outside market for chlorine, IC processes all 800 tons of chlorine it produces into 500 tons of PVC (polyvinyl chloride), which is then sold. There were no beginning or ending inventories of salt, caustic soda, chlorine, or PVC in July. Information for July 2014 production and sales follows:

 

1. Allocate the joint costs of $100,000 between caustic soda and PVC under (a) the sales value at splitoff method and (b) the physical-measure method.

2. Allocate the joint costs of $100,000 between caustic soda and PVC under the NRV method.

3. Under the three allocation methods in requirements 1 and 2, what is the gross-margin percentage of (a) caustic soda and (b) PVC?

4. Lifetime Swimming Pool Products offers to purchase 800 tons of chlorine in August 2014 at $75 per ton. Assume all other production and sales data are the same for August as they were for July. This sale of chlorine to Lifetime would mean that no PVC would be produced by IC in August. How would accepting this offer affect IC’s August 2014 operating income?

1 Home Insert A Page Layout Joint costs (costs of salt and processing to 2 splitoff point) Separable cost of processing 800 tons chlorine into 500 tons PVC 3 4 5 6 Beginning inventory (tons) 7 Production (tons) Formulas 8 Transfer for further processing (tons) 9 Sales (tons) 10 Ending inventory (tons) Selling price per ton in active outside market 11 (for products not actually sold) 12 Selling price per ton for products sold Data Review C B Joint Costs $100,000 Caustic Soda 0 1,200 1,200 0 $ 50 Chlorine 0 800 800 0 $75 View D PVC $20,000 PVC 0 500 500 0 $ 200