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Biondi Industries: Joint Costs Allocation, Production Decisions, Split off PST-4

Biondi Industries is a manufacturer of chemicals for various purposes. One of the processes used by them is 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.

Biondi uses the net-realizable-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. Biondi uses FIFO in valuing its finished good inventories.

Data regarding Biondi's operation for the month of October are as follows. During this month Biondi incurred joint production costs of $1,7000,000 in the manufacture of HTP-3, PST-4, and RJ-5.

Finished goods inventory in gallons October 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 $874,000 $816,000 $60,000
Final sales value per gallon $4.00 $6.00 $5.00
Chemicals used HTP -3 PST -4 RJ-5

1. Determine Biondi's allocation of joint production costs for the month of October, and carry calculation of relative proportions for 4 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 Biondi has a new opportunity to sell PST-4 at the split off point for $3.90 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.

Solution Preview

Please see response to your posting in the attached file.

Biondi Industries
DATA
Joint cost $17,000,000
HTP-3 PST-4 RJ-5
Finished goods inventory in gallon (Oct. 1) 18000 52000 3000
October sales in gallons 650000 325000 150000
October production in gallons 700000 350000 170000
Finished goods inventory in gallon (Oct. 31) 68000 77000 23000 Finished goods inventory in gallon (Oct. 1)+October production in gallons-October sales in gallons
Additional processing cost $874,000 $816,000 $60,000
Final sales value per gallon $4 $6 $5
Chemicals used HTP-3 PST-4 RJ-5

1. Determine Biondi's allocation of join production costs for the month of October, carry calculation of relative ...

Solution Summary

This solution addresses Biondi Industries and provides full calculations and explanations in determining cost allocation methods of joint production costs, dollar values of finished goods, and analysis of new sale opportunities.

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