2C2L OAKES INC. MANUFACTURED 40,000 GALLONS OF MONONATE AND 60,000 GA...
249.
CSO: 2C2e
LOS: 2C2l
Oakes Inc. manufactured 40,000 gallons of Mononate and 60,000 gallons of Beracyl in a
joint production process, incurring $250,000 of joint costs. Oakes allocates joint costs
based on the physical volume of each product produced. Mononate and Beracyl can each
be sold at the split-off point in a semifinished state or, alternatively, processed further.
Additional data about the two products are as follows.
Mononate
Beracyl
Sales price per gallon at split-off
$7
$15
Sales price per gallon if processed further
$10
$18
Variable production costs if processed further
$125,000
$115,000
An assistant in the company’s cost accounting department was overheard saying “....that
when both joint and separable costs are considered, the firm has no business processing
either product beyond the split-off point. The extra revenue is simply not worth the
effort.” Which of the following strategies should be recommended for Oakes?
a.
Sell at split-off
Sell at split-off.
b.
Sell at split-off
Process further.
c.
Process further
Sell at split-off.
d.
Process further
Process further.