Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 37

Joint Products The Salinas Company produces three products, X, Y, and Z, from a joint process. Each product can be sold at the split-off point or processed further. Additional processing requires no special facilities, and the production costs of further processing are entirely variable and traceable to the prod­ucts involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $80,000. Sales values and costs needed to evaluate Salinas' production policy follow:

			If All Units Processed Further
Product	Units Produced	Sales Value at Split-Off	Sales Value	Additional Costs
X	5,000	$25,000	$55,000	$9,000
Y	4,000	41,000	45,000	7,000
Z	1,000	24,000	30,000	8,000

Required

1. Determine the unit cost and gross profit for each product if Salinas allocates joint production costs in proportion to the relative physical volume of output.

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2. Determine unit costs and gross profit for each product if Salinas allocates joint costs using the sales value method.

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3. Should the firm sell any of its products after further processing?

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4. Salinas has been selling all of its products at the split-off point. Selling any of the products after further processing will entail direct competition with some major customers. What strategic factors does the firm need to consider in deciding whether to process any of the products further?

Step 1 of 11

Physical measure method:

Physical measure method of joint cost allocation allocates the joint cost based on relative physical number of units at the spilt off point of the various joint products.

Joint cost is allocated by calculating proportion of the physical units and then allocating joint cost to the each joint product.