Carina Company produces sanitation products after processing specialized chemicals; The following relates to its activities: 1 Kilogram of chemicals purchased for $2000 and with an additional $1000 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 $1 and the Cleaning agent can be sold for $4 per litre. At an additional cost of $400, Carina can process the 400 grams of Crystal into 500 grams of Detergent that can be sold for $2 per gram. The 80 litres of Cleaning agent is packaged at an additional cost of $300 and made into 200 packs of Softener that can be sold for $2 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 Carina have processed each of the products further? What effect does the allocation method have on this decision?
Carina Company produces sanitation products after processing specialized chemicals; The
following relates to its activities:
1 Kilogram of chemicals purchased for $2000 and with an additional $1000 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 $1 and the Cleaning agent can be sold for $4 per litre.
At an additional cost of $400, Carina can process the 400 grams of Crystal into 500
grams of Detergent that can be sold for $2 per gram. The 80 litres of Cleaning agent is
packaged at an additional cost of $300 and made into 200 packs of Softener that can
be sold for $2 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 Carina have processed each of the products further? What effect does the allocation method have on this decision?
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