Draw a diagram similar to Exhibit 

17–8 to depict Edmonton Chemical

Company’s joint production process.
Allocate the company’s joint production costs for May using: a. The physical-units method. b. The relative-sales-value meth
method

a. The physical-units m
GIVEN
Joint Cost
Costs: $ 630,000
Input Cost $180,000
Processing Cost $450,000

Outputs b. The relative-sales-valu

Resoline (lbs) 8,000 Joint Cost
Krypto (lbs) 2,000 $ 630,000

Conversion Prices
Resoline into Resolite $ 15
Krypto into Kryptite $ 45 c. Relative-Sales me
Kryptite into Omega $ 120 Joint Cost Joint Products
Packaging Omega $ 18 $ 630,000 Resolite
Kryptite
Sale Price (per lb) Total
Resoline $ 75
Krypto $ 150
Resolite $ 105
Kryptite $ 285
Omega $ 390
method. b. The relative-sales-value method. c. The net-realizable-value

The physical-units method

Joint Products Quantity at Split-Off Point Relative Proportion Allocation of Joint Costs
Resoline 8,000 4/5 $ 504,000
Krypto 2,000 1/5 $ 126,000
Total 10,000 $ 630,000

The relative-sales-value method

Joint Products Sales Value at Split-Off PoinRelative Proportion Allocation of Joint Costs
Resoline $ 600,000 2/3 $ 420,000
Krypto $ 300,000 1/3 $ 210,000
Total $ 900,000 $ 630,000

Relative-Sales method
Sales value of final product Separable Processing Cost Net Realizable Value Relative Proportion
$ 840,000 $ 120,000 $ 720,000 3/5
$ 570,000 $ 90,000 $ 480,000 2/5
$ 1,410,000 $ 1,200,000
Allocation of Joint Costs
$ 378,000
$ 252,000
$ 630,000
 Q3. Edmonton’s management is considering an opportunity to process Kryptite further into a new product called
Omega. The separable processing will cost $120 per pound. Packaging costs for Omega are projected to be $18 per
pound, and the anticipated sales price is $390 per pound. Should Kryptite be processed further into Omega? Why?

Decision Analysis
Incremental Revenues per pound
Sales Price of Omega $ 390 The Kryptite should not be processed furthe
Sales Price of Kryptite $ 285 because of the incremental loss per pou
Incremental Revenue $ 105
Incremental cost per pound*
Separable Processing $ 120
Packaging $ 18
Incremental Cost $ 138

Incremental gain (loss) per pound $ (33)

Q4. In answering requirement (3), did you use your joint cost allocation from requirement (2)? If so, how did you use
it?

No we didn't use the joint cost allocation in the decision analysis since then the total joint cost will not be
affected by the decision.
new product called
ected to be $18 per
into Omega? Why?

uld not be processed further into Omega

e incremental loss per pound of $33.

so, how did you use

Build a spreadsheet: Construct an Excel spreadsheet to solve requirements (2) and (3) above. Show how the solution will ch
sales price of Omega is $375 per poun

Requirements (2)
a. The physical-units method
Joint Cost Joint Products Quantity at Split-Off Point
$ 640,000 Resoline 8,000
Krypto 2,000
Total 10,000

b. The relative-sales-value method

Joint Cost Joint Products Sales Value at Split-Off Point
$ 640,000 Resoline $ 600,000
Krypto $ 300,000
Total $ 900,000

c. Relative-Sales method
Joint Cost Joint Products Sales value of final product Separable Processing Cost
$ 640,000 Resolite $ 840,000 $ 120,000
Kryptite $ 570,000 $ 90,000
Total $ 1,410,000

Requirements (3)
Decision Analysis
Incremental Revenues per pound
Sales Price of Omega $ 375 New price
Sales Price of Kryptite $ 285
Incremental Revenue $ 90
Incremental cost per pound*
Separable Processing $ 120
Packaging $ 18
Incremental Cost $ 138

Incremental gain (loss) per $ (48)

e. Show how the solution will change if the following information changes: the joint processing cost is $460,000, and the
price of Omega is $375 per pound.

Relative Proportion Allocation of Joint Costs

4/5 $ 512,000
Since the processing cost changed to $460,000
1/5 $ 128,000
$ 640,000

Relative Proportion Allocation of Joint Costs

2/3 $ 426,667
1/3 $ 213,333
$ 640,000

Net Realizable Value Relative Proportion Allocation of Joint Costs

$ 720,000 3/5 $ 384,000
$ 480,000 2/5 $ 256,000
$ 1,200,000 $ 640,000

Even after the change in Omega sales price, the Kryptite should not be processed further into Omega because
of the incremental loss per pound of $48.