Introduction to Management Accounting by Horngren, Sundem, Stratton, Burgstahler & Schatzberg
Chapter: Sell or Process Further
Question: An Exxon petrochemical factory produces two products, L and M, as a result of a particular joint process. Both products are sold to manufacturers as ingredients for assorted chemical products.
Product L sells at split off for $0.25 per gallon. M, for $0.30 per gallon. Data for April follow:
Joint processing cost $1,600,000
Gallons produced and sold
L 4,000,000
M 2,500,000
Suppose that in April the 2,500,000 gallons of M could have been processed further into Super M at an additional cost of $165,000. The Super M output would be sold for $0.36 per gallon. Product L would be sold at split off in any event.
Should M have been processed further in April and sold as Super M? Show your computations.