The following scenario relates to four requirements.

Daisy Co is a large chemical company. One of its chemical processes produces two joint products: Nettle and Monkey. Each of these joint products can be sold at the end of the joint process (the separation point) or can be further processed into enhanced versions of the products, called Nettleplus and Monkeyplus.

The budget information relating to the joint process and further processing for period 3 is shown in the following table:

Budget information for period 3

Note 1: Joint costs are apportioned on the basis of output.
Note 2: Normal losses occur at the end of further processing.

Daisy Co’s production manager for this process needs to decide on the optimal production plan for period 3. She is unsure if either of the joint products should be further processed after the separation point and needs advice.

Period 4

In period 4, it has been decided that 280,000 litres of Nettle and 220,000 litres of Monkeyplus will be produced. The apportioned joint costs for period 4 are $4,500,000 for Nettle and $3,300,000 for Monkeyplus. The selling prices, further processing costs and normal loss details are the same as in period 3.

Information on costs and selling prices is collected by different departments within Daisy Co and is recorded on individual departmental spreadsheets and systems. This information is often not shared with other departments, so the production manager rarely has access to up-to-date information. She has heard of enterprise resource planning systems (ERPS) and wonders if one could be of use to Daisy Co.

Daisy Co carries no inventory.