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(Solution Download) Allocate the joint costs of $100,000 between caustic soda and PVC under the NRV method.

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Inorganic Chemicals (IC) processes salt into various industrial products. In July 2012, IC incurred joint costs of $100,000 to purchase salt and convert it into two products: caustic soda and chlorine. Although there is an active outside market for chlorine, IC processes all 800 tons of chlorine it produces into 500 tons of PVC (polyvinyl chloride), which is then sold. There were no beginning or ending inventories of salt, caustic soda, chlorine, or PVC in July. Information for July 2012 production and sales follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A

 

 

B

 

 

C

 

 

D

 

 

1

 

 

Joint Costs

 

 

PVC

 

 

2

 

 

Joint costs (costs of salt and processing to splitoff point)

 

 

$100,000

 

 

3

 

 

Separable cost of processing 800 tons chlorine into 500 tons PVC

 

 

$20,000

 

 

4

 

 

5

 

 

Caustic Soda

 

 

Chlorine

 

 

PVC

 

 

6

 

 

Beginning inventory (tons)

 

 

0

 

 

0

 

 

0

 

 

7

 

 

Production (tons)

 

 

1,200

 

 

800

 

 

500

 

 

8

 

 

Transfer for further processing (tons)

 

 

800

 

 

9

 

 

Sales (tons)

 

 

1,200

 

 

500

 

 

10

 

 

Ending inventory (tons)

 

 

0

 

 

0

 

 

0

 

 

11

 

 

Selling price per ton in active outside market (for products not actually sold)

 

 

$ 7 5

 

 

12

 

 

Selling price per ton for products sold

 

 

$ 50

 

 

$ 200

 

 

1. Allocate the joint costs of $100,000 between caustic soda and PVC under (a) the sales value at split off method and (b) the physical-measure method.

 

2. Allocate the joint costs of $100,000 between caustic soda and PVC under the NRV method.

 

3. Under the three allocation methods in requirements 1 and 2, what is the gross margin percentage of (a) caustic soda and (b) PVC?

 

4. Lifetime Swimming Pool Products offers to purchase 800 tons of chlorine in August 2012 at $75 per ton. Assume all other production and sales data are the same for August as they were for July. This sale of chlorine to Lifetime would mean that no PVC would be produced by IC in August. How would accepting this offer affect IC?s August 2012 operating income?

 







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