Joint Products; Blood Donation Donation of blood through the American Red Cross and otherorganizations is an important way to maintain the blood supplies that are critical to patient treatmentin hospitals.Three blood products are produced from blood received from donors: (1) red cells, used primarilyin surgery; (2) platelets, used to prevent spontaneous bleeding in leukemia patients; and (3) plasma,used after further processing, for the treatment of protein deficiency. The joint cost of producing thethree products consists of the blood collection costs, the safety testing costs, and further processing ina laboratory to split off the three joint products. Commonly, the joint costs are allocated to the threeproducts on the basis of physical units produced. The National Blood Authority (NBA) in the UKobserved the unfavorable effect of this approach in that the cost of each blood product could changesignificantly from time to time, as the demand for the products varied; the demand for the platelets wasparticularly volatile. In response, the NBA decided to allocate all joint costs to red cells, on the basis, inpart, that plasma was routinely discarded to minimize the risk of Creutzfeldt-Jakob disease.Required What are the advantages and disadvantages of the allocation approach proposed by the NBA?What allocation method would you suggest as an alternative, if any?
Joint Products; Blood Donation Donation of blood through the American Red Cross and other
organizations is an important way to maintain the blood supplies that are critical to patient treatment
in hospitals.
Three blood products are produced from blood received from donors: (1) red cells, used primarily
in surgery; (2) platelets, used to prevent spontaneous bleeding in leukemia patients; and (3) plasma,
used after further processing, for the treatment of protein deficiency. The joint cost of producing the
three products consists of the blood collection costs, the safety testing costs, and further processing in
a laboratory to split off the three joint products. Commonly, the joint costs are allocated to the three
products on the basis of physical units produced. The National Blood Authority (NBA) in the UK
observed the unfavorable effect of this approach in that the cost of each blood product could change
significantly from time to time, as the demand for the products varied; the demand for the platelets was
particularly volatile. In response, the NBA decided to allocate all joint costs to red cells, on the basis, in
part, that plasma was routinely discarded to minimize the risk of Creutzfeldt-Jakob disease.
Required What are the advantages and disadvantages of the allocation approach proposed by the NBA?
What allocation method would you suggest as an alternative, if any?
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