Question: Fremont Industries makes three main products
Fremont Industries makes three main products (X, Y, and Z) from a common input, Q. The three products are identifiable at a common split-off point. 20% of Q is used in department 2 to produce X; 40% is used in department 3 to produce; and 40% is used in department 4 to produce Z. In department 4 (Z) there is a 10% evaporation loss of the input during the production process. There is no loss in the production of X or Y. In March 110,000 lbs. of Q were used at a cost of $95,280. Additional information is as follows:
|
Sales Price
|
Separable Costs
|
Sales Value at Split-off Point
|
|
X
|
2.50 lbs
|
$25,000
|
$32,000
|
|
Y
|
2.00 lbs
|
$8,000
|
$78,000
|
|
Z
|
3.00 lbs
|
$28,800
|
$90,000
|
REQUIRED:
1. Using the sales value at split-off point method, allocate the joint costs to X, Y, and Z.
2. Using the net realizable at split-off point method, allocate the joint costs to X, Y, and Z.
3. Using the constant gross margin percentage method, allocate the joint costs to the three main products.
4. If Fremont had a choice between selling at split-off point or producing each product further, which option would the company choose if the company was trying to maximize profits? Indicate whether each product would be (1) sold at split-off point; (2) processed further or (3) it makes no difference.