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Pharmacy Company produces three main products which share joint costs from a joint process, Altor, Loral, and Hycor.A hazardous waste product called Dorzinox is also produced from the process. The president of Pharmacy, Susan Franklin, is considering new opportunities that would change the way the products are processed and sold.Proposed changes are described below.

ALTOR:

Altor is presently sold at the splitoff point to a manufacturer

of face cream. Altor can also be refined for use to treat dandruff.However,

there would be extra processing which would cause a loss of 20,000 units of

Altor. The separable costs to further process Altor will be $250,000 each year.

The final product would sell for $5.50 per unit.

LORAL:

Currently Loral is processed further after the split-off point and sold by

Pharmacy as a vitamin. Pharmacy has an offer from another company to purchase

Loral at the split-off point for $2.25 per unit.

HYCOR:

Hycor is produced from the joint process and is currently sold at the split-off

point to a makeup company. Pharmacy's R&D people have suggested that they

refine this product further and sell it as muscle relaxing gel. This extra

refining would cost $75,000 annually and would result in 25 percent more units

of product (due to adding water). The muscle gel sell for for $1.80 per unit.

DORZINOX:The

joint process also produces 50,000 units of Dorzinox, a hazardous chemical

waste product. The company must pay $0.035 per unit to dispose of the Dorzinox

properly. This cost of disposal is treated as an operating expense, and is not

included in the joint processing cost. ABC Chemicals is interested in

purchasing the Dorzinox for use as a paint remover.Pharmacy would have to

refine the Dorzinox at a cost of $43,000. ABC Chemicals would purchase all the

refined Dorzinox produced by Friday and is willing to pay $0.75 for each unit.

1.Using Pharmacy's current processes to sell their products

calculate the allocation of joint costs using the Constant Gross Margin NRV

Method. How would I calculate the amount of joint costs allocated to each

product? What are the formulas?

Joint Cost. 1,800,000

Units Produced. 170,000 (A) 500,000 (L) 330,000 (H) 50,000 (D)

Sales Value per unit split-off 3.50 (A) 2.00(H)

Separable costs 1,400,000 (L)

Final sales value per unit 5.00 (L)

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