Question 5 (14 marks)

Thorpe Industries produces chemicals for the swimming pool industry.

In one joint process, 10 000 litres of XY are processed into 6 000 litres of X and 4 000 litres of Y. The cost of the joint process, including the XY, is $17 500. Thorpe allocates $11 800 of the joint cost to X and $5 700 of the cost to Y.

The 4 000 litres of Y can be sold at the split-off point for $3 500, or be processed further into a product called Z. The sales value of 4 000 litres of Z is $11 000, and the additional processing cost is $6 700.

Required:

1. (a)Should Y be sold at the split-off point or processed further? (2 mark)
2. (b)Provide the reason(s) for your answer to Question (a). (4 marks)
3. (c)Are the cost of the joint process, $17 500, and the allocation of that cost to X and Y relevant to your decision made to answer Question (a)? (4 marks)
4. (d)Provide the reason(s) for your answer to Question (c). (4 marks)