Hernandez Chemical Company's production

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Hernandez Chemical Company's production process for two of its solvents can be diagrammed using a process map as shown in Exhibit 12-25.

 

 

The cost of the joint input, including processing costs before the split-off point, is $400,000. Solvent A can be sold at the split-off point for $20 per gallon and solvent B for $60 per gallon.

 

 

 

Indirect materials (Pounds)

 

 

55,000

 

 

Base materials (gallons)

 

 

220,000

 

 

Processing machine (machine hours)

 

 

80,000

 

 

Labor (labor hours)

 

 

45,000

 

 

Total Costs

 

 

$400,000

 

 

 

 

 

at split-off point:

 

 

 

 

 

 

Yield

 

 

Selling Price

 

 

Solvent A

 

 

20,000

 

 

$20

 

 

Solvent B

 

 

10,000

 

 

$60

 

 

Total

 

 

30,000

 

 

 

 

 

 

1. Allocate the $400,000 joint cost to solvents A and B by the physical-units method.

 

 

2. Allocate the $400,000 joint cost to solvents A and B by the relative-sales-value method.

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