In a certain production process 100 000 kg of a single raw material were processed at a cost of $250

000. At split-off two intermediate products, A and B emerged, weighed as 60 000 kg of A and 40 000

kg of B. A was processed further at a cost of $45 000 to produce C, and B was processed further at a

cost of $25 000 to produce D. C sold for $4.50 per kg.

Charles Sturt University Subject Outline

Required:

(a) If A was allocated $187 500 of the joint production costs under the net realisable value method,

what was the selling price of D?

(b) Suppose the firm receives an offer to buy all of product A for $2 per kg at the split-off point.

Would the firm be better off selling A or processing further to produce C? By how much?