Question

Problem 17-87 Lowrey Chemical manufactures two...

Lowrey Chemical manufactures two industrial chemicals in a joint process. In October, $400,000 of direct materials were processed at a cost of $500,000, resulting in 6,000 pounds of Pentex and 14,000 pounds of Glaxco. Pentex sells for $40 per pound and Glaxco sells for $70 per pound. Management generally processes each of these chemicals further in separable processes to manufacture more refined products. Pentex is processed separately at a cost of $10.00 per pound, with the resulting product, Pentex-R, selling for $50 per pound. Glaxco is processed separately at a cost of $20 per pound, and the resulting product, Glaxco-R, sells for $80 per pound.

Required:

Compute the company's total joint production costs.

Assuming that total joint production costs amounted to $900,000, allocate these costs by using: (1) The physical-units method; (2) The relative-sales-value method; (3) The net-realizable-value method.

Answer 1

Req 1.
Total Joint cost:
Direct material cost			400000
Procecssing cost Joint			500000
Total Joint cost:			900000
Req 2.
Allocation of Joint cost:
on the basis of Units:
Products	Units	% of Total	Joint Cost	Allocation of JC
Pentex	6000	30%	900000	270000
Glaxo	14000	70%	900000	630000
Total	20000			900000
On Sales value basis:
Products	Units	SP t splitt off	Sales value	% of Total	Joint Cost	Allocation of JC
Pentex	6000	40	240000	19.67%	900000	177030
Glaxo	14000	70	980000	80.33%	900000	722970
Total	20000		1220000			900000
On basis of NRV
Products	Units	SP t splitt off	Sales value	Further cost	NRV	% of Total	Joint Cost	Allocation of JC
Pentex	6000	50	300000	60000	240000	22.22%	900000	200000
Glaxo	14000	80	1120000	280000	840000	77.78%	900000	700000
Total	20000		1420000		1080000			900000