Winchester Chemicals uses a Joint process to produce VX4, a chemical used in the manufacture of paints

Winchester Chemicals uses a Joint process to produce VX–4, a chemical used in the manufacture of paints and varnishes: HD–10, a chemical used in household cleaning products; and FT–5, a by-product that is sold to fertilizer manufacturers. Joint production costs are allocated to the main products on the basis of net realizable value. The by-product is inventoried at its net realizable value, and this value is used to reduce the joint production cost before allocation to the main products.

During the month of November, Winchester incurred joint production costs of $1,568,000. Data regarding Winchester’s November operations are as follows:

Required:
1. Define the terms joint costs and split-off point.
2. Determine the dollar values of Winchester Chemicals’ finished-goods inventories on November 30 for VX–4 and HD–10.
3. Winchester Chemicals has an opportunity to sell HD–10 for its sales value at the split-off point. Determine if Winchester should sell HD–10 at the split-off point or continue to process itfurther.

Transcribed Image Text:

VX-4 600,000 320,000 None $720,000 $920,000 HD-10 November production in gallons... Sales value per gallon at split-off Separable processing cost... Final sales value per gallon .$4.00 Finished-goods inventory in gallons on FT-5 85,000 $.90 None None $3.00 $6.375 26,000 1,500 'Disposal costs of $.10 per gallon will be incurred in order to sell the by-product.