Le Monde Company's Allocation of joint production costs
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Le Monde Company is a manufacturer of chemicals for various purposes. One of the processes used by Le Monde produces HTP-3, a chemical used in hot tubs and swimming pools; PST-4, a chemical used in pesticides; and RJ-5, a product that is sold to fertilizer manufacturers. Le Monde uses the net realized value method to allocate joint production costs. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Le Monde Company uses FIFO (first in, first out) in valuing its finished goods inventory.
Data regarding operations for the month of October are as follows. During this month, Le Monde incurred joint production costs of $1,360,000 in the manufacture of HTP-3, PST-4 and RJ-5.
HTP-3 PST-4 RJ-5
Finished goods inventory in gallons (oct 1) 18,000 52,000 3,000
October sales in gallons 650,000 325,000 150,000
October production in gallons 700,000 350,000 170,000
Additional processing costs $699,200 $652,800 $48,000
Final sales value per gallon $3.20 4.80 $4.00
1. Determine Le Monde Company's allocation of joint production costs for the month of October. (Carry calculation of relative proportions to four decimal places)
2. Determine the dollar values of the finished goods inventories for HTP-3, PST-4 and RJ-5 as of October 31. (Round the cost per gallon to the nearest cent)
3. Suppose Le Monde Company has a new opportunity to sell PST-4 at the split off point for $3.04 per gallon. Prepare an analysis showing whether the company should sell PST-4 at the split off point or continue to process this product further.
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