Grassy Fertilizer manufactures two lines of garden grade fertilizeras part of a joint production process: GF10 and GF20. Joint costsup to Grassy's split-off point total $85,000 per batch. Thesejoint costs are allocated to GF10 and GF20 in proportion to theirrelative sales values at the split-off point of $40,000 and$60,000, respectively.
Both lines of garden grade fertilizer can be further processed intocommercial grade fertilizer. The following table summarizes thecosts and revenue associated with additional processing of GF10 andGF20:
|
Adaditional
|
Final Selling Price
|
|
Processing
|
Batch of commercial
|
|
Cost
|
Grade fertilizer
|
|
GF10
|
$18,000
|
$67,000
|
|
GF20
|
38,000
|
97,000
|
(a) The $85,000 in joint costs should be allocated to each productas follows:
GF10 $____________, GF20 $____________
(b) Which product (GF10 or GF20) would result in a net decrease inoperating income if processed into a commercial grade fertilizer?
(c) Which product (GF10 or GF20) would result in a net increase inoperating income if processed into a commercial grade fertilizer?