Carichem Company produces sanitation products after processing specialized chemicals. The following relates to its activities: 1 Kilogram of chemicals purchased for $4000 and with an additional $2000 is processed into 400 grams of Crystals and 80 litres of a Cleaning agent. At split-off, a gram of Crystal can be sold for $2 and the Cleaning agent can be sold for $8 per litre. At an additional cost of $800, Carichem can process the 400 grams of Crystal into 500 grams of Detergent that can be sold for $4 per gram. The 80 litres of Cleaning agent is packaged at an additional cost of $600 and made into 200 packs of Softener that can be sold for $4 per pack. Required: 1. Allocate the joint cost to the Detergent and the Softener using the following: a. Sales value at split-off method b. NRV method 2. Should Carichem have processed each of the products further? What effect does the allocation method have on this decision?
Carichem Company produces sanitation products after processing specialized chemicals. The
following relates to its activities:
1 Kilogram of chemicals purchased for $4000 and with an additional $2000 is
processed into 400 grams of Crystals and 80 litres of a Cleaning agent. At split-off, a
gram of Crystal can be sold for $2 and the Cleaning agent can be sold for $8 per litre.
At an additional cost of $800, Carichem can process the 400 grams of Crystal into 500
grams of Detergent that can be sold for $4 per gram. The 80 litres of Cleaning agent is
packaged at an additional cost of $600 and made into 200 packs of Softener that can
be sold for $4 per pack.
Required:
1. Allocate the joint cost to the Detergent and the Softener using the following:
a. Sales value at split-off method
b. NRV method
2. Should Carichem have processed each of the products further? What effect does the
allocation method have on this decision?
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