Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 12

Joint Products Mumbai Chemical makes three widely used industrial adhesives: M10, M15, and M18. Sales and production information for a gallon of each of the three adhesives are shown in the following table. Most of Mumbai's customers ask for a special blend of the three products which improves heat-resistance. The additional separable processing requires additional time and materials, and the price is increased accordingly, as shown in the table. Assume that Mumbai produces only for specific customer orders, so there is no beginning or ending inventory. Assume also that all of Mumbai's customers requested the heat-resistant version of the product, so that all production required additional separable processing. Total joint cost for the three products is $3,500,000.

Required
1. Calculate the product cost and gross margin for each of the three product lines using the following methods:
(a) physical unit method, (b) sales value at split-off method, and (c) the net realizable value method.
2. Which of the three methods do you think would be preferred in this case Why