16-38
Step 2
Standard Deluxe
Module Module Total
Final sales value of total production $14,000 $26,500 $40,500
Deduct gross margin using overall gross
margin percentage (20.0%) 2,800 5,300 8,100
bits produced for each type of module follows:
Standard Deluxe
Module/ Module/
Chips Chips Total
Physical measure of total production (bits) 200,000 600,000 800,000
16-39
The physical measure method bears little relationship to the revenue-producing power of
the individual products. Several physical measures could be used such as the number of chips
and the number of good bits. In each case, the physical measure only relates to one aspect of the
2. The correct approach in deciding whether to process further and make DRAM modules
from the standard modules is to compare the incremental revenue with the incremental costs:
Incremental revenue from making DRAMs ($46 × 350) – $14,000 $2,100
16-40
16-36 (60 min.) Joint cost allocation, ending w ork in process inventories
a. Sales value at splitoff method:
Extreme
Chocolate
Very
Strawberry
Total
Sales value of total production at splitoff,
5,000 × $2; 3,000 × $2
$10,000
$6,000
$16,000
Weighting, $10,000; $6,000
$16,000
0.625
0.375
Joint costs allocated,
0.625; 0.375 $5,200
$ 3,250
$1,950
$5,200
b. Net realizable value method:
Since some of the inventory is still in process, to determine total separable costs associated with
total production, a cost per equivalent whole gallon must be computed.
Chocolate:
16-41
Extreme
Chocolate
Very
Strawberry
Total
$20,000
$ 15,000
$35,000
Deduct final separable costs
11,000
9,000
20,000
Net realizable value
$ 9,000
$ 6,000
$15,000
Weighting, $9,000; $6,000
$15,000
0.60
0.40
Joint costs allocated,
0.60; 0.40 $5,200
$3,120
$ 2,080
$5,200
c. Constant gross-margin percentage NRV method:
Step 1:
Final sales value of total production, $35,000
Deduct joint and separable costs, ($5,200 + $20,000) 25,200
Extreme
Chocolate
Very
Strawberry
Total
Final sales value, 5,000 × $4; 3,000 × $5
$20,000
$15,000
$35,000
Deduct gross margin, using overall
gross-margin percentage of sales (28%)
5,600
4,200
9,800
Total production costs
14,400
10,800
25,200
Step 3:
Deduct final separable costs
11,000
9,000
20,000
Joint costs allocated
$ 3,400
$ 1,800
$ 5,200
2.
Extreme Chocolate
Very Strawberry
Gross Margin before joint cost
allocations, $20,000 – $11,000;
$15,000 – $9,000
$9,000
$6,000
Gross
Margin
Gross
Margin %
Gross
Margin
Gross
Margin %
Sales value at splitoff, $9,000 –
$3,250; $6,000 – $1,950
$5,750
28.75%a
$4,050
27.00%b
Net realizable Value, $9,000 –
$3,120; $6,000 – $2,080
$5,880
29.40%
$3,920
26.13%
Constant gross margin % NRV,
$9,000 – $3,400; $6,000 –
$1,800
$5,600
28.00%
$4,200
28.00%
16-42
16-37 (60 min.) Joint cost allocation with further processing, pricing and ethics issues
1. Total joint costs = (15,000 × $12) + (15,000 × $30) = $630,000
a. Sales value at splitoff method:
Alpha
Beta
Total
Sales value of total production at splitoff,
12,000 × $76.50; 3,000 × $144
$918,000
$432,000
$1,350,000
Weighting, $918,000; $432,000
$1,350,000
0.68
0.32
Joint costs allocated,
0.68; 0.32 $630,000
$ 428,400
$201,600
$630,000
b. Physical-measure method:
Alpha
Beta
Total
Physical measure of total production
(15,000 lbs × 8/10; 15,000 lbs × 2/10)
12,000 pounds
3,000 pounds
15,000 pounds
Weighting, 12,000; 3,000
15,000
0.80
0.20
Joint costs allocated,
0.80; 0.20 × $630,000
$504,000
$126,000
$630,000
c. Net realizable value method:
Alphalite
Betalite
Total
Final sales value of total production,
12,000 $105.00; 3,000 $285.00
$1,260,000
$855,000
$2,115,000
Deduct separable costs
300,600
338,400
639,000
Net realizable value
$ 959,400
$516,600
$1,476,000
Weighting, $959,400;
$516,600
$1,476,000
0.65
0.35
Joint costs allocated,
0.65; 0.35 $630,000
$ 409,500
$220,500
$ 630,000
d. Constant gross-margin percentage NRV method:
Step 1:
16-43
Alpha
Beta
Total
Final sales value of total
production (see 1c.)
$1,260,000
$855,000
$2,115,000
Deduct gross margin, using overall
gross-margin percentage of sales (40%)
504,000
342,000
846,000
Total production costs
756,000
513,000
1,269,000
Step 3:
Deduct separable costs
300,600
338,400
639,000
Joint costs allocated
$ 455,400
$174,600
$ 630,000
2. Should the company sell Betalite or Ultra-Betalite?
Additional revenue from selling Ultra-Betalite
Sales value of Ultra-Betalite, 3,000 $360 $1.080,000
Sales value of Betalite, 3,000 $285 855,000
3. According to the IMA Statement of Ethical Professional Practice, the ethical issues
surrounding Danny include:
a. Competence – the responsibility to provide decision support information that is
accurate.