PROBLEM $3(50\%)$

$3$A$.$ Cost Allocation $-$ Joint Cost $(25\%)$

XYZ Pharmaceutical Company purchases a material which is then processed to yield three

chemicals: A$,$ E$,$ and B$.$ In August, the Company purchased $20,000$ gallons of the material at

$$250,000,$ and the company incurred joint conversion costs of $$140,000.$ August sales and

production information are as follows:

A and $E$ are sold to other pharmaceutical companies at the split$-$off point. B can be sold at the

split$-$off point or processed further and packaged for sale as a gastro medication.

Required:

Allocate the joint costs to the three products using the physical unit method, the sales$-$

value$-$at$-$split$-$off method, the net realizable value method, and the constant gross

margin percentage method.

Suppose that half of August's production of $E$ could be purified and mixed with all of

the $A$ to produce a veterinary$-$grade anesthetic. All further processing costs amount to

$$35,000.$ The selling price for the veterinary grade $A^{\text{'}}$ is $$56$ per gallon. Should XYZ

further process the into the $A^{\text{'}}$ anesthetic?