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Forest Products, Incorporated, manufactures three products (FP-10, FP-20, and FP-40) from a single, joint input. None of the products can be sold without further processing. In November, joint product costs were $240,700. Additional information follows:
Product Units Produced Sales Values Processing Costs (After Split-Off)
FP-10 87,000 $ 173,250 $ 28,700
FP-20 130,500 309,750 108,700
FP-40 72,500 84,700 24,700
The sale of FP-40 has been banned by a recent law. If FP-40 is produced, disposal in an approved manner costs $120,000 for every 72,500 units produced.
Required:
a.) Assuming that Forest Products continues to use the physical quantities method of allocation and to manufacture and sell FP-10 and FP-20. What joint costs would be allocated to FP-10 and FP-20?
b.) There is a possibility that a market for FP-10 and FP-20 at split-off will develop. In other words, it will be possible to sell the two products rather than process them further. At what sales value (at split-off) would Forest Products be indifferent between selling them at split-off and processing them further?
c.) At what sales value (at split-off) would Forest Products be indifferent between selling them at split-off and processing them further, in case the disposal cost for FP-40 increases to $150,000 for every 72,500 units of FP-40 produced?
