Good Hope Pharmaceutical Company purchases raw material that is processed to yield three chemicals namely; Zetamol, Paramol, and Bethamol. In January 2009, the company purchased 10000 kilograms of the raw material at a cost of $ 2500000 and incurred joint conversion cost of $700000. Sales and production information for the month of January were as follows;
|
Kilograms produced
|
Price at spilt-off $
|
Further processing
cost per Kg $
|
Eventual selling price $
|
|
Zetamol
|
2,000
|
550
|
-
|
-
|
|
Paramol
|
3,000
|
400
|
-
|
-
|
|
Bethamol
|
5,000
|
300
|
50
|
600
|
Zetamol and paramol are sold to other pharmaceutical companies at the split off point. Bethamol can be sold at the split off point or processed further and packaged for sales as an asthma medication.
Required
Allocate the joint cost to the three products using:
- i. The physical unit sold
- ii. The sales value split off method
- iii. The net realizable value method
- iv. Suppose that half the production of Paramol could be purified and mixed with all the production of Zetamol to yield parazetamol. All further processing costs amount to $ 350000. The selling price for parazetamol is $ 1120 per kilogram. Advice the company on whether to further process Zetamol into 2000 kilograms of parazetamol.