Sunshine Chemical generates 4 solvents (B, C, D, and E) simultaneously from the joint production in Department
Question:
Sunshine Chemical generates 4 solvents (B, C, D, and E) simultaneously from the joint production in Department A. In 2020, Department A consumes $56,000 direct material and $24,000 direct labour; the manufacturing overhead are $10,000. Solvent B is the by-product. The firm deducts the estimated NRV of by-product (net realizable value) from the joint cost of solvents C, D, and E. The following is the cost and revenue information for the output of Department A in 2020:
| Barrels | Sales price per barrel at split-off point | Further processing cost per barrel | Final sales price per barrel | |
| B | 500 | -- | $2.00 | $3.50 |
| C | 10,000 | $8.00 | -- | -- |
| D | 14,000 | $12.50 | $8.00 | $19.00 |
| E | 20,000 | $4.00 | -- | -- |
Currently, by-product solvent B requires further processing before it could be sold to customers. Solvents C and E can be sold directly at the split-off point, without further processing. Solvent D can be sold directly at the split-off point; alternatively, it could be processed further so that it could be sold to outside customers at a higher sales price. The further processing of solvent D requires 14,000 barrels of solvent F that can be purchased at $4.50 per barrel. The additional labour and overhead cost in the further processing are $3.50 for each barrel of Solvent D. Thus, the further processing cost of solvent D is $8.00 per barrel. The physical amount of Solvent D does not change in the further processing.
Required
1. Should Sunshine Chemical further process solvent D? Why? Use your computation to support your answer.
2. Allocate the joint cost among solvents C, D, and E based on the sales value at the split-off point.
Expert Answer:
Calculation of joint cost Direct Material 56000 Direct labor 24000 Manufacturing overhead Total jo... View the full answer
