Lamont Industries produces chemicals for the swimming pool industry. In one joint process, 10,000 gallons of GSX are processed into 7,000 gallons of xenolite and 3,000 gallons of banolide. The cost of the joint process, including the GSX, is $19,000. The firm allocates $13,300 of the joint cost to the xenolite and $5,700 of the cost to the banolide. The 3,000 gallons of banolide can be sold at the split-off point for $2,500, or be processed further into a product called kitrocide. The sale value of $3,000 gallons of kitrocide is $10,000, and the additional processing cost is $8,100.
The firms President is asking for a consulting firm to make a recommendation as to whether the banolide should be sold at the split-off point or processed further. Provide an analysis and a recommendation in a letter form.
Sale value at split-off point $2,500
Less: Allocated joint costs $5,700
Sale value $10,000
Less: Allocated joint costs ...
The solution examines joint products accounting for Lamont Industries.