Task: West Chemical, Joint Costs, allocate physical units NRV
West Chemical manufactures Pentex and Glaxco - two industrial chemicals - in a joint process. In October, 16,000 pounds of Pentex and 4,000 pounds of Glaxco were processed. Management generally processes each of these chemicals further in separable processes to manufacture more refined products. Pentex is processed separately at a cost of $120,000, with the resulting product selling for $45 per pound. Glaxco is processed separately at a cost of $40,000, and the resulting product sells for $100 per pound.
Required:
1. Assuming that total joint production costs amounted to $500,000, allocate these costs by using:
a. The physical-units method.
b. The net-realizable-value method.
2. What revenue or expense amounts are necessary to make a sell-or-process-further decision and why?
3. When allocating joint costs, what is the meaning of death spiral?