Case Scenario:
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 costs before allocation to the main products.
During the month of November, Winchester incurred joint production costs of $1,568,000. Data regarding Winchesters November's operations are as follows:
VX-4 HD-10 FT-5
November production in gallons 600,000 320,000 85,000
Sales value per gallon at split-off None $3.00 $0.90
Separable processing costs $720,000 $920,000 None
Final sales value per gallon $4.00 $6.375 None
Finished goods inventory in gallons on
November 30 (all producted during November)
Disposal costs of $.10 per gallon will be incurred in order to sell the by-product
1. Determine the dollar values of Winchester Chemicals finished goods inventories on November 30- for VX 4 and HD 10
2. 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 it further.