Question 3: A company produces two joint products, Liquid 1 and Liquid 2, from a common process. For every 1,000 litres of input to the common process, output consists of 450 litres of Liquid 1 and 550 litres of Liquid 2. The following are the details of the common process costs in terms of 1 litre of each liquid output. 450 Liquid 1 Direct Material 1 Direct Material 2 Conversion costs $10 $8 $15 550 Liquid 2 $12 $9 $18 Liquid 1 can be sold for $50 per litre, after incurring selling costs of $5 per litre at the split off point, and Liquid 2 can be sold for $60 per litre, after incurring selling costs of $6 per litre at the split off point. Alternatively, Liquid 2 can be processed to make a finished product, Fluid 1. The costs of further processing consist of variable costs of $7 per litre and fixed costs of $90,000 per year of which 80% would be directly attributable to the further processing operations. Fluid 1 would have a selling price of $80 per litre of output. It is estimated that 12,000 litres of Fluid 1 will be produced each year. No losses are anticipated and incurred at any stage of processing.