Meadow Labs produces a drug used for the treatment of arthritis. The drug is produced in batches In March, Meadow, which had no opening inventory, processed one batch of chemicals. It sold 1,600 gallons of product for human use and 150 gallons of the veterinarian product. Meadow uses the net realizable value method for allocating joint production cost

Chemicals costing $54,000 are mixed and heated, then a unique separation process then extracts the drug from the mixture. A batch yields a total of 3,200 gallons of the chemicals. The first 2,900 gallons are sold for human use while the last 300 gallons, which contain impurities, are sold to veterinarians. The costs ofmixing, heating, and extracting the drug amount to $164,800 per batch. The output sold for human use is pasteurized at a total cost of $139,200 and is sold for $580 per gallon. The product sold to veterinarians is irradiated at a cost of $24 per gallon and is sold for $480 per gallon.

1.	How much in joint costs does Meadow allocate to each product?
2.	Compute the cost of ending inventory for each of Meadow's products.
3.	If Meadow were to use the constant gross-margin percentage NRV methodinstead, how would it allocate its joint costs?
4.	Calculate the gross margin on the sale of the product for human use in March under the constant gross-margin percentage NRV method.
5.	Suppose that the separation process also yields 260 pints of a toxic byproduct. Meadow currently pays a hauling company $6,300 to dispose of this byproduct. Meadow is contacted by a firm interested in purchasing a modified form of this byproduct for a total price of $7,100. Meadow estimates that it will cost about $34 per pint to do the required modification. Should Meadow accept the offer?

Answer rating: 100% (QA)

Lets first calculate joint cost as under 1 Allocation of joint cost under NRV method NRV sales ... View the full answer