Reference no: EM132617278

Volker Inc. (Volker) is a manufacturer of industrial cleaning products. The manufacturing process for one of Volker's products (SCXX) also produces an industrial solvent (FX45) and a by-product. The by-product is inventoried at its net realizable value, and this net realizable value is used to reduce the joint production costs before the joint production costs are allocated to SCXX and FX45.

Information regarding Volker's operations for 2019 are as follows:

                                                                          SCXX                       FX45            By-product

Sales (litres)                                         1,500,000               900,000          130,000

Production at split-off point (litres)             1,600,000                850,000       120,000

Final production (litres)                              1,650,000              1,000,000

Sales value per litre at split-off                     $3.60                       $2.45          $1.10

Additional processing costs                            $2,500,000              $1,100,000   $0.20 per litre

Final sales value per litre                                       $6.10                  $4.75

Disposal costs of $0.20 per litre are incurred to sell the by-product. During 2019, Volker incurred joint production costs of $2,908,000. Volker has NO opening or ending inventories in 2019, and uses the net realizable value method to allocate joint production costs.

Required:

Problem a) Determine the cost per litre for each of SCXX and FX45.

Problem b) Describe the other commonly used method that Volker could use to account for its by-product.