Unified Chemical company has a joint production process that converts Zeta into
ID: 2722223 • Letter: U
Question
Unified Chemical company has a joint production process that converts Zeta into two chemicals: Alpha and Beta. The company purchases Zeta for $12 per pound and incurs a cost of $30 per pound to process it into Alpha and Beta. For every 10 pounds of Zeta, the company can produce 8 pounds of Alpha and 2 pounds of Beta. The selling price for Alpha and Beta are $76.5 and $144, respectively.
Unified Chemical generally processes Alpha and Beta further in seperable processes to produce more refined products. Alpha is processed separately into Alphalite at a cost of $20.05 per pound. Beta is processed separately into Betalite at a cost of $112.80 per pound. Alphalie and Betalite sell for $105 and $285 per pound, respevtively. In the most recent month, Unified Chemical purchased 15,000 pounds of Zeta. The company had no beginning or ending inventory of Zeta.
Required
1. Allocate the joint costs to Alphalite and Betalite under the following methods (please keep them separated!! Also please be detailed):
a. sales value at splitoff method
b. physical measures (pounds)
c. Net realizable value
d. constant gross margin percentage NRV
2. Unified Chemical is considering an opportunity to process Betalite further into a new product called ultra-betalite. The seperable processing will cost $85 per pound and expects an additional $15 per pound packaging cost for ultra-betalite. The expected selling price would be $360 per pound. Should Unified Chemical sell Betalite or Ultra-Betalite? What selling price for Ultra-betalite would make unified chemical indifferent between selling Betalite or Ultra-betalite?
Explanation / Answer
Zeta =15000 pounds
Total cost to manufacture alpha and beta =(12+30)*15000=630000
Total alpha =(15000/10)*8=12000 pounds
Total beta =(15000/10)*2= 3000 pounds
Separable cost of Alphalite =12000*20.05 =240600
Separable cost of betalite =300*112.80 =33840
Answer 1 a
Particulars
Alpha
Beta
Total
Sales price at split off
76.5
144
No of units
12000
3000
Sales value at split off
918000
432000
1350000
Joint cost
4,28,400
2,01,600
630000
Answer 1b
Particulars
Alpha
Beta
Total
No of units
12000
3000
15000
Joint cost
5,04,000
1,26,000
630000
Answer 1c
Particulars
Alphalite
Betalite
Total
Sales price
105
285
cost for further processing
20.05
112.8
Net realisable price
84.95
172.2
No of units
12000
3000
15000
Net realisable value
1019400
516600
1536000
Joint cost
5,04,000
1,26,000
630000
Answer 1d
Particulars
Alphalite
Betalite
Total
Sales price
105
285
No of units
12000
3000
15000
Total sales value
1260000
855000
2115000
cost for further processing
240600
338400
579000
Joint cost
630000
GP
906000
GP %
42.84%
Cost (1-GP)*sales value
720255.319
488744.68
Cost post seperation
240600
338400
Joint Cost allocated
479655.319
150344.68
630000
Answer 2
Additional cost of further processing in Ultra betalite=85+15=100
Additional sales price =360-285=75
Loss of =75-100=25
Betalite should be sold it should not be processed further.
It will be indifferent of selling Betalite or ultra betalite at price of 385(360+25).
Particulars
Alpha
Beta
Total
Sales price at split off
76.5
144
No of units
12000
3000
Sales value at split off
918000
432000
1350000
Joint cost
4,28,400
2,01,600
630000
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