Solved: Multiproduct Corporation is a chemical

manufacturer that produce

Multiproduct Corporation is a chemical manufacturer that produces two main products (Pepco-1
and Repke-3) and a by-product (SE-5) from a joint process. If Multiproduct had the proper
facilities, it could process SE-5 further into a main product. The ratio of output quantities to input
quantity of direct material used in the joint process remains consistent with the processing
conditions and activity level.
Multiproduct currently uses the physical measure method of allocating joint costs to the main
products. It uses the first-in, first-out (FIFO) inventory method to value the main products. The
byproduct is inventoried at its net realizable value, which is used to reduce the joint production
costs before they are allocated to the main products.
Jim Simpson, Multiproduct's controller, wants to implement the sales value method of joint cost
allocation. He believes that inventory costs should be based on each product's ability to
contribute to the recovery of joint production costs. Multiproduct uses an asset recognition
approach in accounting for by-products.
Data regarding Multiproduct's operations for November are presented in the following report.
The joint cost of production totaled $2,640,000 for November.

Required
1. Describe the sales value method and explain how it would accomplish Jim's objective.
2. Assuming Multiproduct adopts the sales value method for internal reporting purposes,
calculate the following:
a. The allocation of the joint production cost for November.
b. The dollar values of the finished goods inventories for Pepco-1, Repke-3, and SE-5 as of
November 30.
3. Multiproduct plans to expand its production facilities to further process SE-5 into a main
product. Discuss how the allocation of the joint production costs under the sales value method
would change when SE-5 becomes a main product.
(CMAAdapted)

ANSWER
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