Question

Cool Pool Ltd produces equipment and chemical supplies for the swimming pool industry. In one joint process, 10,000 litres of GSX are processed into 7,000 litres of xenite and 3,000 litres of banolide. The cost of the joint process including the GSX, is $40,000. Cool Pool allocates $28,000 of the joint cost to the xenolite and $12,000 of the cost to the banolide. the 3,000 litres of banolide can be sold at the split-off point for $5,000, or they can be processed further into a product called kitrocide. The sales value of the 3,000 litres of kitrocide is $20,000, and the additional processing cost is $26,200. Cool Pool also manufacture pool vacuum cleaners. A new product is now available from India and Cool Pool's management are considering buying in these new vacuum cleaners and badging them as Cool Pool cleaners. Cool Pool's managing director 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 and to provide them with details of the issues that they should consider when making the decision to outsource this product. Required Write a letter providing an analysis and a recommendation with respect to whether the banolide should be sold at split off or processed further. Also include in this letter the key issues that the management should consider when making the outsourcing decision.

Answer 1

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