Alderon Industries manufactures chemicals for various purposes. One process that Alderon uses produces SPL-3, a chemical used in swimming pools; PST-4, a chemical used in pesticides; and RJ-5, a by-product sold to fertilizer manufacturers. Alderon uses the net realizable value of its main products to allocate joint production costs and the first-in, first-out inventory method to value the main products. The by-product is inventoried at its net realizable value, which is used to reduce the joint production costs before they are allocated to the main products. The ratio of output to input of direct material used in the joint process remains consistent from month to month.

Data regarding Alderon's operations for the month of November follow. During this month, Alderon incurred joint production costs of $1,702,000 in the manufacture of SPL-3, PST-4, and RJ-5.

 

	SPL-3	PST-4	RJ-5
Finished goods inventory in gallons on Nov. 1	18,000	52,000	3,000
November sales in gallons	650,000	325,000	150,000
November production in gallons	700,000	350,000	170,000
Sales value per gallon at split-off	$0.00	$3.80	$0.70
Additional process costs after split-off	$874,000	$816,000	$0
Final sales value per gallon	$4.00	$6.00	$0
Disposal and selling costs per gallon			$0.10

Required

1. Determine Alderon Industries’ allocation of joint production costs for the month of November. Be sure to present appropriate supporting calculations.

2. Determine the dollar values of the finished goods inventories for SPL–3, PST–4, and RJ–5 as of November 30.

3. Alderon has an opportunity to sell PST–4 at the split-off point for $3.80 per gallon. Prepare an analysis showing whether Alderon should sell PST–4 at the split-off point or process further.

4. As a production supervisor for Alderon, you have learned that small quantities of the critical chemical compound in PST–4 might be present in SPL–3. What should you do?