Chapter 14, Problem 32E

Lamont Industries produces chemicals for the swimming pool industry. In one joint process, 10,000 gallons of GSX are processed into 7,000 gallons of xenolite and 3,000 gallons of banolide. The cost of the joint process, including the GSX, is $19,000. The firm allocates $13,300 of the joint cost to the xenolite and $5,700 of the cost to the banolide. The 3,000 gallons of banolide can be sold at the split-off point for $2,500, or be processed further into a product called kitrocide. The sales value of 3,000 gallons of kitrocide is $10,000, and the additional processing cost is $8,100.

Required: Lamont’s president has asked your consulting firm to make a recommendation as to whether the banolide should be sold at the split-off point or processed further. Write a letter providing an analysis and a recommendation.