Question:
Inventory Cost Determination; Management Processing Decision. The Laverock Company's joint cost of producing 1,000 units of Product A, 500 units of Product B, and 500 units of Product C is $100,000. The unit sales values of the three products at the split-off point are Product A $20; Product B $200; Product C $160. Ending inventories include 100 units of Product A, 300 units of Product B, and 200 units of Product C.
Required:
(1) The amount of joint cost that would be included in the ending inventory of the three products
(a) on the basis of their relative sales value and
(b) on the basis of physical units.
(2) The relative merits of each of these two bases of joint cost allocation
(a) for financial statement purposes and
(b) for decisions about the desirability of selling joint products at the split-off point or processing them further.