Winchester Chemicals uses a joint process to produce VX-4, a chemical used in the manufacture of paints
Question:
Winchester Chemicals uses a joint process to produce VX-4, a chemical used in the manufacture of paints and varnishes; HD-10, a chemical used in household cleaning products; and FT-5, a by-product that is sold to fertilizer manufacturers. Joint production costs are allocated to the main products on the basis of net realizable value. The by-product is inventoried at its net realizable value, and this value is used to reduce the joint production cost before allocation to the main products.
During the month of November, Winchester incurred joint production costs of $1,568,000. Data regarding Winchester’s November operations are as follows:
Required: 1. Define the terms joint costs and split-off point. 2. Determine the dollar values of Winchester Chemicals’ finished-goods inventories on November 30 for VX-4 and HD-10. 3. Winchester Chemicals has an opportunity to sell HD-10 for its sales value at the split-off point. Determine if Winchester should sell HD-10 at the split-off point or continue to process it further.
Transcribed Image Text:
November production in gallons
Sales value per gallon at split-off
Separable processing cost
Final sales value per gallon
Finished-goods inventory in gallons on
November 30 (all produced during November)
*Disposal costs of $.10 per gallon will be incurred in order to sell the by-product.
VX-4
600,000
None
$720,000
$4.00
9,000
HD-10
320,000
$3.00
FT-5
85,000
$.90*
$920,000
None
$6.375 None
26,000
1,500
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