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Required: 1. Did management make the correct decision? 2. What is the gross savings or loss per week resulting from the decision not to process RNA-2 further, if different from management's analysis?

Required: 1. Did management make the correct decision? 2. What is the gross savings or loss per week resulting from the decision not to process RNA-2 further, if different from management's analysis?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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PR 14-51 (Static) Joint Products; Sell or Process Further (LO 14-6) Connecticut Chemical Company is a diversified chemical processing company. The firm manufactures swimming pool chemicals, chemicals for metal processing, specialized chemical compounds, and pesticides. Currently, the Noorwood plant is producing two derivatives, RNA-1 and RNA-2, from the chemical compound VDB developed by the company's research labs. Each week, 1,200,000 pounds of VDB are processed at a cost of $246,000 into 800,000 pounds of RNA-1 and 400,000 pounds of RNA-2. The proportion of these two outputs cannot be altered because this is a joint process. RNA-1 has no market value until it is converted into a pesticide with the trade name Fastkil. Processing RNA-1 into Fastkil costs $240,000. Fastkil wholesales at $50 per 100 pounds. RNA-2 is sold as is for $80 per hundred pounds. However, management has discovered that RNA-2 can be converted into two new products by adding 400,000 pounds of compound LST to the 400,000 pounds of RNA-2. This joint process would yield 400,000 pounds each of DMZ-3 and Pestrol, the two new products. The additional direct-material and related processing costs of this joint process would be $120,000. DMZ-3 and Pestrol would each be sold for $57.50 per 100 pounds. The company's management has decided not to process RNA-2 further based on the analysis presented in the following schedule. Production in pounds Revenue Costs: VDB costs RNA-2 400,000 $ 320,000 $ 82,000* New Joint Products Pestrol 400,000 $ 230,000 DMZ-3 400,000 $230,000 $ 61,500 60,000 $82,000 $ 121,500 $ 238,000 $ 108,500 0 $ 61,500 60,000 $ 121,500 $ 108,500 Total $ 460,000 $ 123,0001 120,000 $243,000 $ 217,000 Additional direct materials (LST) and processing of RNA-2 Total costs Weekly gross profit *$82,000 is one-third of the $246,000 cost of processing VDB. When RNA-2 is not processed further, one-third of the final output is
Transcribed Image Text:PR 14-51 (Static) Joint Products; Sell or Process Further (LO 14-6) Connecticut Chemical Company is a diversified chemical processing company. The firm manufactures swimming pool chemicals, chemicals for metal processing, specialized chemical compounds, and pesticides. Currently, the Noorwood plant is producing two derivatives, RNA-1 and RNA-2, from the chemical compound VDB developed by the company's research labs. Each week, 1,200,000 pounds of VDB are processed at a cost of $246,000 into 800,000 pounds of RNA-1 and 400,000 pounds of RNA-2. The proportion of these two outputs cannot be altered because this is a joint process. RNA-1 has no market value until it is converted into a pesticide with the trade name Fastkil. Processing RNA-1 into Fastkil costs $240,000. Fastkil wholesales at $50 per 100 pounds. RNA-2 is sold as is for $80 per hundred pounds. However, management has discovered that RNA-2 can be converted into two new products by adding 400,000 pounds of compound LST to the 400,000 pounds of RNA-2. This joint process would yield 400,000 pounds each of DMZ-3 and Pestrol, the two new products. The additional direct-material and related processing costs of this joint process would be $120,000. DMZ-3 and Pestrol would each be sold for $57.50 per 100 pounds. The company's management has decided not to process RNA-2 further based on the analysis presented in the following schedule. Production in pounds Revenue Costs: VDB costs RNA-2 400,000 $ 320,000 $ 82,000* New Joint Products Pestrol 400,000 $ 230,000 DMZ-3 400,000 $230,000 $ 61,500 60,000 $82,000 $ 121,500 $ 238,000 $ 108,500 0 $ 61,500 60,000 $ 121,500 $ 108,500 Total $ 460,000 $ 123,0001 120,000 $243,000 $ 217,000 Additional direct materials (LST) and processing of RNA-2 Total costs Weekly gross profit *$82,000 is one-third of the $246,000 cost of processing VDB. When RNA-2 is not processed further, one-third of the final output is
of DMZ-3 and Pestrol. The final products then are: 800,000 pounds of RNA-1; 400,000 pounds of DMZ-3; and 400,000 pounds of Pestrol. Required: 1. Did management make the correct decision? 2. What is the gross savings or loss per week resulting from the decision not to process RNA-2 further, if different from management's analysis? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the gross savings or loss per week resulting from the decision not to process RNA-2 further, if different from management's analysis? Gross loss per week < Required 1 Check
Transcribed Image Text:of DMZ-3 and Pestrol. The final products then are: 800,000 pounds of RNA-1; 400,000 pounds of DMZ-3; and 400,000 pounds of Pestrol. Required: 1. Did management make the correct decision? 2. What is the gross savings or loss per week resulting from the decision not to process RNA-2 further, if different from management's analysis? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the gross savings or loss per week resulting from the decision not to process RNA-2 further, if different from management's analysis? Gross loss per week < Required 1 Check
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