XYZ Petrochemical Company has a joint process that results in 2400 lbs of product X (final product), 3,600 lbs of product Y (intermediate product), and 1,600 lbs of product Z (by product). Product X can be sold for $5 a lb. Product Y can be sold for $9 a lb after an additional process that costs $7,200. Product Z can be sold for $2.00 a lb but requires .60 a lb in sales commission and .40 a lb in shipping. The process has joint costs of $30,400. (You may ignore Gross Margin Method)

Required:

1) Determine unit cost of X and Y under 

a) NRV, 

b) Physical measures, 

c) constant gross margin method, and 

d) relative sales value method (assume in this case that Y can be sold for $6 a lb at the split-off point. In all cases assume that the NRV of by-product Z is subtracted from the total joint costs.

2) How do we decide whether these products should be produced in the first place?

 3) What purposes are served by joint cost allocation?

Answer rating: 100% (QA)

Calculation of joint costs Total joint cost 30400 Less Net realizable value By product Z 1600 160020... View the full answer