Case 17-36 Comprehensive Case on Joint Cost Allocation (LO 17-4, 17-5)

Edmonton Chemical Company manufactures two industrial chemical products in a joint process. In May, 15,000 gallons of input costing $58,000 were processed at a cost of $158,000. The joint process resulted in 10,000 pounds of Resoline and 5,000 pounds of Krypto. Resoline sells for $30 per pound, and Krypto sells for $40 per pound. Management generally processes each of these chemicals further in separable processes to produce more refined chemical products. Resoline is processed separately at a cost of $7 per pound. The resulting product, Resolite, sells for $40 per pound. Krypto is processed separately at a cost of $12 per pound. The resulting product, Kryptite, sells for $56 per pound.

Required: 2-a. Allocate the companys joint production costs for May using the physical-units method. (Do not round your intermediate calculations.)

Joint Products

Allocation of Joint Cost

Resoline

Krypto

Total

2-b.

Allocate the companys joint production costs for May using the relative-sales-value method. (Do not round your intermediate calculations.)

Joint Products

Allocation of Joint Cost

Resoline

Krypto

Total

$0

2-c.

Allocate the companys joint production costs for May using the net-realizable-value method. (Do not round your intermediate calculations.)

Joint Products

Allocation of Joint Cost

Resoline

Krypto

Total

3-a.

Edmontons management is considering an opportunity to process Kryptite further into a new product called Omega. The separable processing will cost $45 per pound. Packaging costs for Omega are projected to be $8 per pound, and the anticipated sales price is $85 per pound. Calculate the incremental profit or loss from processing Kryptite into Omega.

Incremental

per pound

3-b.	Should Kryptite be processed further into Omega? yes or no