Fandem Technology manufactures two products using a joint process. The cost of materials going into the joint process for a typical period is $55,000, while labour and overhead to operate the process amount to $65,000. For this level of operations the firm obtains 10,000 pounds of product 1 and 30,000 pounds of product 2. Product 1 can be sold "as is" for $4 per pound. Product 2requires further processing costs of $2 per pound and is eventually sold for $7 per pound.
a. Determine net income by product line, if Tandem sells 7,000 pounds of product 1 and 26,000 pounds of product 2 in a particular period (assume Tandem has sufficient inventory and always produces the quantities stated above). Use the net realizable value method for allocating joint costs.
b. Assume the firm does not sell product 1, "as is", but instead incurs separate processing costs of $20,000 per batch to "finish" the product. The finished products sell for $5 per pound. Assume Tandem started a period with no beginning inventory and sold all 10,000 pounds of product 1 and all 30,000 pounds of product 2. What is the net income by product line for the period, again using the net realizable value method for allocating joint costs?
c. Assuming Tandem would sell the same number of "unfinished" units of product 1 as "finished" units, should it sell the product in its finished or unfinished form? Why?