Deepa Company manufactures two products using a joint process. The cost of materials used during a typical period is $55,000, while labour and overhead are $65,000. This level of operations results in 10,000 kilograms of product 1 and 30,000 kilograms of product 2. Product 1 can be sold “as is” for $4/kg. Product 2 requires further processing costs of $2/kg and is eventually sold for $3/kg.

REQUIRED:

A. Determine gross margin by product line if Deepa sells 7,000 kg of product 1 and 26,000 kg of product 2 in a particular period. Deepa uses the NRV method to allocate joint costs.

B. Assume the firm does not sell product 1 “as is” but instead incurs separate processing costs of $20,000 per batch of 10,000 kg to finish the product. The finished products sell for $5/kg. Assume that Deepa sold 10,000 kg of product 1 and 30,000 kg of product 2. What is the gross margin by product line for the period using the NRV method?

C. Assume that Deepa could sell the same number of kilograms of product 1 “as is.” Should the company finish the product or sell it “as is”? Why?