Question
Oak View Chemicals produces two main products, M-10 and M-20, and one by-product, B-60, from a single input, Chem-X. Products M-10 and M-20 can either
Oak View Chemicals produces two main products, M-10 and M-20, and one by-product, B-60, from a single input, Chem-X. Products M-10 and M-20 can either be sold at split-off or processed further and sold. A given batch begins with 1,000 gallons of Chem-X with a cost of $90,000. Additional information regarding a batch follows.
| If Processed Further | ||||||||||||
| Product | Units Produced | Unit Sales Value at Split-off | Additional Costs (Per Unit) | Sales Value (Per Unit) | ||||||||
| M-10 | 22,000 | $ | 5.00 | $ | 2.00 | $ | 6.00 | |||||
| M-20 | 14,000 | $ | 10.00 | $ | 4.00 | $ | 16.00 | |||||
| B-60 | 5,000 | $ | 0.50 | NA | NA | |||||||
A) Oak View Chemicals uses the net realizable at split-off approach to allocate joint costs and treats the sales value of the by-product B-60 as other income. Required:
The joint cost allocated to product M-10 at Oak View Chemicals for a given batch is:
B) Oak View Chemicals uses the physical quantities method to allocate joint costs and the revenues from by-products are credited to joint costs.
Required:
Under these assumptions, the following product(s) should be processed further and then sold:
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Managerial Accounting Creating Value in a Dynamic Business Environment
Authors: Ronald Hilton, David Platt
10th edition
78025664, 978-0078025662
