Fletcher Fabrication, Inc., produces three products by a joint production process. Raw materials are put into production in Department X, and at the end of processing in this department, three products appear. Product A is sold at the split-off point with no further processing. Products B and C require further processing before they are sold. Product B is processed in Department Y, and product C is processed in Department Z. The company uses the estimated net realizable value method of allocating joint production costs. Following is a summary of costs and other data for the quarter ended June 30.
No inventories were on hand at the beginning of the quarter.
No raw material was on hand at June 30.
All units on hand at the end of the quarter were fully complete as to processing.
Products A B C
Pounds sold 21,000 56,000 72,000
Pounds on hand at June 30 50,000 0 43,000
Sales revenues $ 14,700 $ 84,000 $ 108,000
Departments X Y Z
Raw material cost $ 56,000 $ 0 $ 0
Direct labor cost 22,500 38,550 98,550
Manufacturing overhead 9,000 10,350 33,175
Required:
a. Determine the following amounts for each product:
(1) estimated net realizable value used for allocating joint costs.
(2) joint costs allocated to each of the three products.
(3) cost of goods sold, and (4) finished goods inventory costs, June 30.
b. Assume that the entire output of product A could be processed further at an additional cost of $5.70 per pound and then sold for $12.40 per pound. Compute the incremental income from further processing A.
c. Considering the results of part b, should the company process product A further?