XYZ Petrochemical Company has a joint process that results in 2400 lbs of product X (final product), 3,600 lbs of product Y (intermediate product), and 1,600 lbs of product Z (by product). Product X can be sold for $5 a lb. Product Y can be sold for $9 a lb after an additional process that costs $7,200. Product Z can be sold for $2.00 a lb but requires .60 a lb in sales commission and .40 a lb in shipping. The process has joint costs of $30,400. (You may ignore Gross Margin Method)

Required:

1) Determine unit cost of X and Y under 

a) NRV, 

b) Physical measures, 

c) constant gross margin method, and 

d) relative sales value method (assume in this case that Y can be sold for $6 a lb at the split-off point. In all cases assume that the NRV of by-product Z is subtracted from the total joint costs.

2) How do we decide whether these products should be produced in the first place?

 3) What purposes are served by joint cost allocation?