Friday Pharmacy Company produces three main products which share joint costs from a joint process, Altor, Loral, and Hycor. A hazardous waste product called Dorzinox is also produced from the process. Data regarding those products is included in the spreadsheet called Friday posted on D2L.

The president of Friday, Susan Franklin, is considering new opportunities that would change the way the products are processed and sold. Proposed changes are described below.

ALTOR: Altor is presently sold at the splitoff point to a manufacturer of face cream. Altor can also be refined for use to treat dandruff. However, there would be extra processing which would cause a loss of 20,000 units of Altor. The separable costs to further process Altor will be $250,000 each year. The final product would sell for $5.50 per unit.

LORAL: Currently Loral is processed further after the split-off point and sold by Friday as a vitamin. Friday has an offer from another company to purchase Loral at the split-off point for $2.25 per unit.

HYCOR: Hycor is produced from the joint process and is currently sold at the split-off point to a makeup company. Friday’s R&D people have suggested that they refine this product further and sell it as muscle relaxing gel. This extra refining would cost $75,000 annually and would result in 25 percent more units of product (due to adding water). The muscle gel sell for for $1.80 per unit.

DORZINOX: The joint process also produces 50,000 units of Dorzinox, a hazardous chemical waste product. The company must pay $0.035 per unit to dispose of the Dorzinox properly. This cost of disposal is treated as an operating expense, and is not included in the joint processing cost. ABC Chemicals is interested in purchasing the Dorzinox for use as a paint remover. In order to do this, Friday would have to refine the Dorzinox at a cost of $43,000. ABC Chemicals would purchase all the refined Dorzinox produced by Friday and is willing to pay $0.75 for each unit.

1. Using Friday Pharmacy’s current processes to sell their products calculate the allocation of joint costs using the Constant Gross Margin NRV Method. calculate the amount of joint costs allocated to each product.

2. Which, if any, of the opportunities Friday should pursue.

3. Whether the method chosen to allocate the joint costs will affect your analysis of whether to process each chemical further or not.

Answer rating: 100% (QA)

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