Clark Kent Inc. buys crypton for $.80 a gallon. At the end of processing in Dept. 1, crypton splits off into products plutonium, tantalum, and xenon. Plutonium is sold at the split-off point with no further processing. Tantalum and xenon require further processing. Tantalum and xenon require further processing before they can be sold. Tantalum is processed in Dept. 2, and xenon is processed in Dept. 3. Following is a summary of costs and other related data for the year ended December 31:
Dept. 1 Dept. 2 Dept. 3
Cost of crypton $76,000 0 0
Direct labor $14,000 $51,000 $65,000
Factory Overhead 10,000 26,500 49,000
Total $100,000 $77,500 $114,000
Plutonium Tantalum Xenon
Gallons sold 20,000 30,000 45,000
Gallons on hand at December 31 10,000 15,000
Sales in Dollars $30,000 $96,000 $141,750
No inventories were on hand at the beginning of the year, and no crypton was on hand at the end of the year. All gallons on hand at the end of the year were complete as to processing. Kent uses the net realization value method of allocating joint costs.
Required:
1. Calculate the allocation of joint costs.
2. Calculate the total cost per unit for each product.
3. In examining the product cost reports, Lois Lane, Vice President-Marketing, notes that the per-unit cost of tantalum is greater than the selling price of $2.75 that can be received in the competitive marketplace. Lane wonders whether they should stop selling tantalum. How did Lane determine that the product was being sold at a loss? What per unit cost should be used in determining whether tantalum should be sold?