Please show all steps so I can understand. Thanks so much! Sell or Process Furth

Question

Please show all steps so I can understand. Thanks so much!

Sell or Process Further Decisions Joint products have common processes and costs of production up to a split-off point. At that point, they become distinguishable. For example, certain minerals such as copper and gold may both be found in a given ore. The ore must be mined, crushed, and treated before the copper and gold are separated. The point of separation is called the split-off point. The costs of mining, crushing, and treatment are common to both products Often, joint products are sold at the split-off point. But sometimes, it is more profitable to process a joint product beyond the split-off point prior to selling it. The key point is that all of the joint production costs are irrelevant to the sell or process further decision.By the time the split-off point is reached, all joint costs are sunk, and therefore, irrelevant. The only relevant costs are those incurred beyond the split-off point Example: Enviro-Chem Company processes a number of chemical compounds used in producing reagents for the environmental testing industry. One compound is decomposed into two chemicals: guarine and petroline. The cost of processing one batch of compound is $83,300, and the result is 3,320 gallons of guarine and 8,520 gallons of petroline. Enviro-Chem Company can sell the guarine at split-off for $16 per gallon and the petroline for $8 per gallon. Alternatively, the guarine can be processed furher at a cost of $4 per gallon (of guarine) into rhydrolite. It takes 4 gallons of guarine for every gallon of rhydrolite. A gallon of rhydrolite sells for $76. If the guarine is sold at split-off, Enviro-Chem will earn sales revenue on guarine of $ of rhydrolite sells for $76. If the guarine is sold at split-off, Enviro-Chem will earn sales revenue on guarine of If the guarine is processed further into rhydrolite, Enviro-Chem will earn a net post-split off amount of It is better for Enviro-Chem Company to -Select your answer

Explanation / Answer

3,320 Gallons of Guarine is Produced during split off

Sales Revenue During Splitoff = 3,320 X 16 = $ 53,120

After splits of if further processed the 4 gallons of Guarine is required to produce 1 Rhydrolite. so rhydrolite produced are = 3,320 /4 = 830 gallons of Rhydrolite

Sales revenue = 830 X 76 = $ 63,080

Extra Cost = 3,320 X 4 = $ 13,280

Net post splitoff sales revenue = $ 49,800

allocable Joint Cost = 83,300 X 3,320 /( 3,320 +8,520) = $ 23,357

Net profit by selling processed after Split off = $ 26,443

so its better to choose to sell it at split off rather than selling it after processing it because at splitoff it produces sales revenue more by $3,320 than sales revenue from selling it after processing.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.