92. Stulce Inc. produces joint products A, B, and C from a joint process. Information
concerning a batch produced in May at a joint cost of $120,000 was as follows:
A B C Total
Units Sold 2,500 4,000 1,500 8,000
Price (after addt’l processing) $35 $22 $15
Separable Processing cost $35,000 $12,000 $16,000 $63,000
Units Produced 2,500 4,000 1,500 8,000
Total Joint Cost $120,000
Sales Price at Split-off $25 $12 $13
Required:
(Calculate all ratios, percentages, and unit costs to 4 decimal places, for example 33.3333%, and
round all dollar amounts to the nearest whole dollar.):
1. Allocate the joint costs to the joint products using the physical measure method.
2. Calculate the gross margin for each of the three products using the cost allocation for the
physical measure method in part (1) above.
3. Allocate the joint costs to the joint products using the net realizable method.
4. Calculate the gross margin for each of the three products using the cost allocation for the net
realizable value method in part (3) above.
93. The following data on overhead apply to the Acme Manufacturing Company that
manufactures frames for large trucks in three production departments (J-122, J-123, and J-125).
There are two service departments, the Human Resources Department and the Facilities
Department.
Service Departments Production Department
Human Resources
Facilities
J-122
J-123
J-125
Total
Budgeted Overhead $16,000 $35,000 $28,000 $145,000 $185,000 $409,000
Human Resources*
(hours)
400
800
1,200
1,600
4,000
Facilities**
(thousand square feet)
600
400
1,200
1,800
4,000
*Allocated on the basis of hours of usage in the HR department.
**Allocated on the basis of floor space.
Required:
Using hours as the application base for the Human Resources Department and square feet of
floor space for the Facilities Department, apply overhead from these service departments to the
production departments, using the following two methods. Calculate all ratios and percentages to
4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar.
(1) Direct method.
(2) Step method (assume the human resources department is allocated first).
94. Lond Company produces joint products Jana and Reta, and by-product Bynd. Jana is sold
at split-off; Reta and Bynd undergo additional processing. Production data pertaining to these
products for the year ended December 31 were as follows:
Jana Reta Bynd Total
Joint costs
Variable $88,000
Fixed 148,000
Separable costs
Variable $120,000 $3,000 123,000
Fixed 90,000 2,000 92,000
Production in pounds 50,000 40,000 10,000 100,000
Sales price per pound $4.00 $7.50 $1.10
Lond had no beginning or ending inventories and no materials were spoiled in production. Bynd’s
net realizable value is deducted from joint costs. Joint costs are allocated to joint products to
achieve the same gross margin percentage for each joint product.
Required:
Prepare the following information for Lond Company for the year ended December 31, 2013:
1. Total gross margin.
2. Allocation of joint costs to Jana and Reta.
3. Separate gross margins for Jana and Reta.
95. Princess Corporation grows, processes, packages, and sells three apple products: slices
that are used in frozen pies, applesauce, and apple juice. The outside skin of the apple, which is
removed in the cutting department and processed as animal feed, is treated as a by-product.
Princess uses the net realizable value method to assign costs of the joint process to its main
products. The apple skin by-product net realizable value is used to reduce the joint production
costs prior to allocation to the main products. Details of Princess’ production process follow:
• The cutting department washes the apples and removes the outside skin. The department then
cores and trims the apples for slicing. At this point, each of the three main products and the by–
product are recognizable. Each product is then transferred to the next department for final
processing.
• The slicing department receives the trimmed apples and slices and freezes them. Any juice
generated during the slicing operation is frozen with the slices.
• The crushing department trims pieces of apple and processes them into applesauce. The juice
generated during this operation is used in the applesauce.
• The juicing department pulverizes the core and any surplus apple from the cutting department
into a liquid. This department experiences a loss equal to 8 percent of the weight of the good
output produced.
• The feed department chops the outside skin into animal food and packages it. A total of
270,000 pounds of apples entered the cutting department during November. The following
information shows the costs incurred in each department, the proportion by weight (based on
pounds) transferred to the four final processing departments, and the selling price of each end
product. Assume no beginning or ending inventory of apple slices, applesauce, or juice.
Department
Costs
Incurred Proportion of Product by
Weight
Transferred to Departments
Selling Price
per Pound of
Final Product
Cutting $60,000 – –
Slicing 11,280 33% $0.80
Crushing 8,550 30% 0.55
Juicing 3,000 27% 0.40
Feed 700 10% 0.10
Total $83,530 100%
Required:
1. Princess Corporation uses the net realizable value method to determine inventory values for
its main products and by-products. For the month of November, calculate each of the following:
a. Output in pounds for apple slices, applesauce, apple juice, and animal feed.
b. Net realizable value at the split-off point for each of the three main products.
c. Cutting department cost assigned to each of the three main products and to the by-product in
accordance with corporate policy.
d. Gross margin in dollars for each of the three main products.
2. Comment on the significance to management of the gross margin dollar information by main
product for planning and control purposes as opposed to inventory valuation.
3. List the important issues that Princess faces as a global company. What are its critical
success factors? Which key issues arise because Princess operates in several countries? Should
any of these issues affect the way Princess allocates costs, as determined in requirement 1?
96. Ted Brown is the chief financial officer of Haywood Inc., a large manufacturer of
cosmetics and other personal care products. Ted is conducting a financial analysis of the firm’s
line of hand lotions which consists of three products: SkinSalve, SkinCream, and SkinBalm. Total
sales for the three products in the recent year were $400,000, $250,000 and $500,000,
respectively. Because there is a small amount of additional processing cost for each of the three
products, which differs between the products ($20,000, $50,000 and $30,000, respectively), Ted
has been using the net realizable value method for allocating the joint production cost of
$500,000. However, he is not satisfied with the result of somewhat different gross margin
percentage ratios (gross margin/sales) for the three products when using this approach. He
knows only of the physical measure method, the sales value at split-off method, and the net
realizable value method for allocating joint cost.
Required:
Prepare a new cost allocation for Ted so that after allocation of joint costs and separable costs,
the gross margin percentage is the same for all three products.