Answered: Lamont Industries produces chemicals…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter5: Support Department And Joint Cost Allocation

Section: Chapter Questions

Problem 4BE: Blakes Blacksmith Co. produces two types of shotguns, a 12-gauge and 20-gauge. The shotguns are made...

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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 sales value of 3,000 gallons of kitrocide is $10,000, and the additional processing cost is $8,100.

Required: Lamont’s president has asked your consulting firm to make a recommendation as to whether the banolide should be sold at the split-off point or processed further. Write a letter providing an analysis and a recommendation.

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Decision to Sell before or after additional processing

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