Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 18

Joint Products; By-Products (Appendix) Texchem manufactures chemicals for various purposes. Texchem produces PX-105, a chemical used in swimming pools; GZ-233, a chemical used in pesticides; and M-13, a by-product sold to fertilizer manufacturers. Texchem uses the net realizable value of its main products to allocate joint production costs. The by-product is inventoried at its net realizable value, which is used to reduce the joint production costs before they are allocated to the main products.
Data regarding Texchem's operations for the month of November follow. During this month, Texchem incurred joint production costs of $1,800,000 in the manufacture of its three products.

Required
1. Determine Texchem's allocation of joint production costs for the month of November. Be sure to present appropriate supporting calculations.
2. Texchem has an opportunity to sell GZ-233 at the split-off point for $4.00 per gallon. Prepare an analysis showing whether Texchem should sell GZ-233 at the split-off point or process further.
3. As a production supervisor for Texchem, you have learned that small quantities of the critical chemical compound in GZ-233 might be present in PX-105. What should you do