Question

MIX DECISIONS. The Chicago Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point: A, B, C, and D. Product C is fully processed by the splitoff point. Products A, B, and D can individually be further refined into Super A, Super B, and Super D. In the most recent month (November), the output at the splitoff point was as follows:

• Product A, 550,000 gallons

• Product B, 200,000 gallons

• Product C, 150,000 gallons

• Product D, 100,000 gallons

The joint costs of purchasing and processing the crude vegetable oil were $210,000. Chicago had no beginning or ending inventories. Sales of product C in November were $90,000. Products A, B, and D were further refined and then sold. Data related to November are as follows:

	Separable Processing Costs to Make Super Products	Revenues
Super A	$480,000	$750,000
Super B	120,000	300,000
Super D	90,000	150,000

Chicago had the option of selling products A, B, and D at the splitoff point. This alternative would have yielded the following revenues for the November production:

• Product A, $150,000

• Product B, $125,000

• Product D, $135,000

Required:

1. Draw a diagram of the question labelling and showing joint costs, split-off point, joint products, separable costs and fully-processed products.

2. Allocate the joint costs among the 4 products using the following methods:

a) Sales value at splitoff

b) Physical measures

c) Net realizable value

d)Determine whether Chicago Oil should further process products A, B, or D. (show calculations)

Answer 1

Diagram of the question labelling and showing joint costs, split-off point, joint products, separable costs and fully-processed products is as follows:

2. Allocation of joint costs are given below;

Realisable value of D = (210000/600000)*60000 = $21,000