MA37 Problem: Joint Costing and Sell or Process Further – Alcove Ltd.

MA37 Problem: Joint Costing and Sell or Process Further – Alcove Ltd.

The Mantine Division of Canadian Alcov Ltd. produces two products: Mantine A (M-A) andMantine B (M-B), and a by-product, Ceta, from a single material, Koron. Koron is placed in acentrifuge and separated into three intermediate products: K-1, K-2, and K-3. K-1 is processedfurther to produce Mantine A and K-2 is further processed to produce Mantine B. K-3 is packaged, with packaging costs totaling $3.50 per kilogram, and is sold as Ceta.Mantine production and sales statistics for March were as follows:

Produced (‘000s) Sold (‘000s) Selling Price

K-1 4,000 kgK-2 2,000 kgK-3 (Ceta) 1,000 kg 950 kg $5.00/kgM-A 4,000 kg 4,010 kg $9.50/kgM-B 1,800 kg 1,90 kg $18.00/kgOn March 1, the Mantine Division had inventories on hand of 100,000 kg of Mantine A valuedat $720,000 and 150,000 kg of Mantine B valued at $2,175,000.The company uses a first-in, first-out (FIFO) cost flow assumption to determine inventory andcost of goods sold valuation. There is no waste, spoilage, evaporation, or shrinkage in any of the processes.Total costs (in thousands) of the Mantine processes for March were as follows:Koron $10,000Centrifuge process 6,000M-A process 20,000M-B process 21,600Total $57,600 All finishing costs in the M-A and M-B processes are variable costs. Any units that are in progress for the month of March have not incurred any separable costs.Ceta is treated as a miscellaneous revenue item for income purposes. Any by-product inventoryis carried at net realizable value. No joint costs are allocated to the by-product

Required:

Using the net realizable value method to allocate joint costs, determine the amount thatwould be shown on the balance sheet or income statement for March for the followingitems:a)i) Cost of goods sold.ii) Inventories for K-2, Ceta, M-A, and M-B. b)i) Mantine Division has an offer from another company to buy all the K-1 it can produce at a price of $4.75 per kilogram. Should Mantine accept the offer? Showcalculations.ii) What is the minimum intermediate market price that Mantine should accept for K-l? Why