Winchester Chemicals uses a joint process to produce VX–4, a chemical used in the manufacture of paint, and varnishes: HD–10, a chemical used in household cleaning products: and FT–5, a by-product that is sold to fertilizer manufacturers, Joint production cost are allocated to the main products on the basis, of net realizable value. The by-product is inventoried at it, net realizable value, and this value is used to reduce the joint production cost before allocation to the main products. During the month of November, Winchester incurred joint production costs of $1,568.000. Data regarding Winchester’s November operations are as follows:
| VX–4 | HD–10 | FT–5 |
November or production in gallons | 600,000 | 320,000 | 85,000 |
Sales value per gallon at spilt-on | None | $3,00 | $.90* |
Separable processing cost | $720,000 | $920,000 | None |
Final sales value per gallon | $4.00 | $6.375 | None |
Finished goods inventory in gallons on November 30 (all produced during November) | 9,000 | 26,000 | 1,500 |
Required:
1. Define the term joint costsand split–off point,
2. Determine the dollar value of Winchester Chemicals’ finished-goods inventories on November 30 for VX–4 and HD–10.
3. Winchester Chemicals has an opportunity, to sell HD–10 for its sales value at the split-off point.
Determine if Winchester should sell HD-I0 at the sp lit-of]' point or continue HD–10 process it further.
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