Question
The THT Company operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y, and Z.
The THT Company operates a simple chemical process to convert a single material into three separate items, referred to here as X, Y, and Z. All three end products are separated simultaneously at a single split-off point. All the products are ready for sale immediately upon split-off without further processing or any other additional costs. Product Z, however, can be processed further at an additional cost. The selling prices quoted here are expected to remain the same in the coming year. During 2019, the selling prices of the items and the total amounts sold were as follows:
X75 kgs sold for Tk. 1,800 per kg
Y225 kgs sold for Tk. 1,300 per kg
Z280 kgs sold for Tk. 1,200 per kg (selling price at split-off: Tk. 800 per kg)
The total joint manufacturing costs for the year were Tk. 328,000. THT spent an additional Tk. 120,000 to finish Product Z. There were no beginning inventories of X, Y, or Z. At the end of the year, the following inventories of completed units were on hand: X, 175 kgs; Y, 75 kgs; Z, 70 kgs. There was no beginning or ending work in process.
Required:
i. Compute the cost of inventories of X, Y, and Z for balance sheet purposes and the cost of goods sold for income statement purposes as of December 31, 2019, using the following joint cost allocation methods:
1. Physical measure
2. Sales at split-off
3. NRV
ii. Comment on whether Product Z should be processed further or not.
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