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

Exercise 38

Joint Products

Georgia Chemical makes three widely used industrial adhesives: G121, G143, and G189. See sales and production information for a gallon of each of the three adhesives in the following table. Most of Georgia's customers ask for a special blend of the three products which improves heat- resistance. The additional processing requires additional time and materials, and the price is increased accordingly, as shown in the table. Assume that Georgia produces only for specific customer orders, so there is no beginning or ending inventory. Assume also that all of Georgia’s customers requested the heat-resistant version of the product, so that all production required additional processing.

	G121	G143	G189
Units sold	125,000	100,000	75,000
Price (after addt’l processing)	$ 30	$ 20	$ 25
Separable processing cost	$550,000	$125,000	$625,000
Total joint cost $3,000,000
Sales price at split-off	$ 10	$ 8	$ 12

Required

1. Calculate the product cost of each of the three product lines using the following methods:

(a) physical unit method, (b) sales value at split off method, and (c) the net realizable value method.

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2. Which of the three methods do you think would be preferred in this case? Why?

Step 1 of 5

Joint product costing:

Joint product is a result of a single input or single set of inputs processed in a single production process. The multiple products have substantial commercial value in comparison to each other. In joint product costing the cost is to be identified up to split-off point and it should designate a proper method for allocating such cost among 2 or more products. Further, if a specific cost is associated with a particular product it should be allocated to such product only.