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Myko Chemical Company is a chemical manufacturer that produces two main products, Mora and Nora and a by-product Sara from a joint process. If Myko
Myko Chemical Company is a chemical manufacturer that produces two main products, Mora and Nora and a by-product Sara from a joint process. If Myko had the proper facilities, it could process Sara further into a main product. The ratio of output quantities to input quantity of direct materials used in the joint process remains consistent with processing conditions and activity level. Mora has a ready market value at the split-off point and is usually sold without further processing. Nora is an unsaleable intermediate product that is used in the production of either Norasan or joint products Noravim and Noravit. Product Unit Selling Price per Liter Mora Php22.50 Sara 5.00 Norasan 40.00 Noravim 50.00 Noravit 20.00 During December, production figure for the first department (where Mora, Nora and Sara are produced) are as follows: DM - Php110,000; DL - Php40,000; OH - Php40,000. Production volume is as follows: Mora - 8,000; Nora - 2,000; Sara - 1,000. Case A. Assume that the company opts to process Nora further into Norasan in Department 2. Production data for Department 2 are as follows: Liters of Norasan produced 1,000 Liters of Chemical Nora put into production 1,000 Direct Labor P5,000 Factory Overhead P5,000 REQUIREMENTS: 1. Assume that the approximate NRV at split-off point is used to allocate costs to the main products, and by-products are recognized at point of sale. Show how the cost in Department 1 will be allocated to all the products. 2. Assume that the approximate NRV at split-off point is used to allocate costs to the main products, and by-products are recognized at point of production and management wants to allocate P1,000 of marketing and administrative expenses to the by-products and still have a profit of 20% of the sales price. Show how the cost in Department 1 will be allocated to all the products. 3. Under requirement 2, what would be the unit costs of Mora, Norasan and Sara
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