Problem: Wyalusing Chemicals uses a joint process to produce MJ-4, a chemical used in the manufacture of paints and varnishes; HD-10, a chemical used in household cleaning products; and FT-5, a by-product that is sold to fertilizer manufacturers. Joint production costs are allocated to the main products on the basis of net realizable value. The by-product is inventories as its net realizable value, and this value is used to reduce the joint production cost before allocation to the main products.
During the month of November, Wyalusing incurred joint production costs of $3,136,000. Data regarding Wyalusing’s November operations are as follows.
MJ-4 HD-10 FT-5
November production in gallons 600,000 320,000 85,000
Sales value per gallons at split-off None $6.00 $1.80*
Separable processing cost $1,440,000 $1,840,000 None
Final sales value per gallon $8.00 $12.75 None
Finished goods inventory in gallons on Nov. 30 9,000 26,000 1,500
(everything produced in November)
*Disposal costs of $.20 per gallon will be incurred in order to sell the by-product.
Question 1. Define the terms joint cost and split-off point
Question 2. Determine the dollar values of Wyalusing Chemical’s finished goods inventories on November 30, for JM-4 and HD-10
Question 3. Wyalusing Chemicals has an opportunity to sell HD-10 for its sales value at the split off point. Determine if management should sell HD-10 at the split off point or continue to process it further.