(Process costing; joint cost allocation; by-product) Romanos Hair Salon provides hair styling services and sells a variety of cosmetic and hair-care products. The firm also generates some revenue from the sale of hair, which is periodically swept from the floor of the styling salon. The net realizable value of hair is accounted for as a reduction in the joint cost assigned to the Styling Services and Cosmetic Products. Hair sells for $6 per pound. The cost of packaging the hair is $0.50 per pound, and selling costs of the hair are $0.30 per pound. The following information is available for 2001 on the inventory of Cosmetic Products (the firm does not produce these products; they are purchased):
Joint cost is to be allocated to Styling Services and Cosmetic Products based on approximated net realizable values (revenues less separate costs). For 2001, total revenues were $753,000 from Styling Services and $289,000 from Cosmetic Products. The following joint costs were incurred:
Separate costs were as follows:
For the year, 2,510 pounds of hair were collected and sold.
a. What is the total net realizable value of hair that is applied to reduce the joint cost assigned to Styling Services and to Cosmetic Products?
b. What is the joint cost to be allocated to Styling Services and Cosmetic Products?
c. What is the approximated pretax realizable value of each main product or service for 2001?
d. How much joint cost is allocated to each main product or service?
e. Determine the net income produced by each main product or service.