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Question 2 (17 marks) CA firm in country X manufactures 3 products through a joint-production process A. Raw materials, labors, and overheads are put into
Question 2 (17 marks) CA firm in country X manufactures 3 products through a joint-production process A. Raw materials, labors, and overheads are put into the process A which generates 3 outputs: CA-1, CA- 2, CA-3. Output CA-1 can be immediately sold at the split-off point, with no further processing. Output CA-2 and CA-3 require further processing before they are sold. CA-2 is processed in process B, and output CA-3 is processed in process C, respectively. The firm uses the net realizable value method of allocating joint-production costs. Following is a summary of the costs and other information for the year ended December 2020. No inventories were on hand on January 1st, 2020. All outputs at hand at the end of December 2020 were fully complete. Outputs Pounds sold Pounds at hand on December 31, 2020 CA-2 59,000 CA-1 20,000 50,000 15,000 CA-3 70,000 40,000 137,200 Sales revenues 88,500 B 0 0 Processes Raw material cost Direct labor cost Manufacturing overhead A 56,000 24,000 6,550 40,450 10,550 95,875 36,625 Required: a. Calculate the following amounts for each output (CA-1, CA-2, CA-3): net realizable value used for allocating joint costs and joint costs allocated to each output. (6 marks) b. CA firm is considering setting up another department in country Y to further process output CA-1. Suppose the additional manufacturing cost incurred is expected to be $3 per pound and then can be sold for $4 per pound. In addition, CA firm will transfer output CA-1 at the current selling price in country X, and Country Y charges an import tariff of 40%. With supporting computation, please help CA firm to decide whether they should set up another new department in country Y or not. (7 marks) c. What are the other methods to allocate joint product costs? Briefly explain why we shall allocate joint product cost. (4 marks)
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