Simington Corporation is a chemical manufacturer that produces two main products, Pepco-1 and Repke-3, and a by-product, SE-5, from a joint process. If the company had the proper facilities, it could process SE-5 further into a main product. The ratio of output quantities to input quantity of direct material used in the joint process remains consistent with the processing conditions and activity level.

Required:
(1) Describe the market value method and explain how it accomplishes Jim Simpson's objective.
(2) Assuming the company adopts the market value method for internal reporting purposes:
(a) Calculate how the joint production cost for November is allocated.
(b) Determine the cost assigned to finished goods inventories for Pepco-1, Repke-3, and SE-5 as of November 30.
(3) The company plans to expand its production facilities to enable the further processing of SE-5 into a main product. Discuss how the allocation of the joint production cost under the market value method will change when SE-5 becomes a main product.

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Main ProductsBy Product Pepco-1 ke-3 SE-5 Finished goods inventory in gallons on November 1 20,000 800,000 900,000 40,000 10,000 700,000 200,000 720,000 240,000 November production in gallons Sales value per gallon at split-off point....$ Additional processing cost after split-off.. Final sales value per gallon...... $2.00 1.50 $1,800,000 $720,000 $4.00 $.55 5.00 Marketing costs of $.05 per gallon will be incurred to sell the by-product.