Fletcher Fabrication, Inc., produces three products by a joint production process. Raw materials are put into production in Department X, and at the end of processing in this department, three products appear. Product A is sold at the split-off point with no further processing. Products B and C require further processing before they are sold. Product B is processed in Department Y, and product C is processed in Department Z. The company uses the estimated net realizable value method of allocating joint production costs. Following is a summary of costs and other data for the quarter ended June 30.
No inventories were on hand at the beginning of the quarter. No raw material was on hand at June 30. All units on hand at the end of the quarter were fully complete as to processing.
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Required
a. Determine the following amounts for each product:
(1) Estimated net realizable value used for allocating joint costs,
(2) Joint costs allocated to each of the three products,
(3) Cost of goods sold, and
(4) Finished goods inventory costs, June 30.
b. Assume that the entire output of product A could be processed further at an additional cost of $6.00 per pound and then sold for $12.90 per pound. What would have been the effect on operating profits if all of product A output for the quarter had been further processed and then sold rather than being sold at the split-off point?
c. Write a memo to management indicating whether the company should process product A further and why.
