Question

It purchases cocoa beans and processes them into two intermediate​ products: chocolate-powder liquor base and​ milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 900 pounds of cocoa beans yields 30 gallons of​ chocolate-powder liquor base and 120 gallons of​ milk-chocolate liquor base. The​ chocolate-powder liquor base is further processed into chocolate powder. Every 30 gallons of​ chocolate-powder liquor base yield 670 pounds of chocolate powder. The​ milk-chocolate liquor base is further processed into milk chocolate. Every 120 gallons of​ milk-chocolate liquor base yield 1,090 pounds of milk chocolate.

Cocoa beans​ processed, 19,800 pounds times

Costs of processing cocoa beans to splitoff point​ (including purchase of​ beans), $ 68,000

	Production		Sales		Selling Price		Separable Processing Costs
Chocolate powder	14,740	pounds	6,700	pounds	$12	per pound	$8,975
Milk chocolate	23,980	pounds	14,500	pounds	$10	per pound	$91,095

Creme de Cacao Edibles Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2017​, Creme de Cacao Edibles Factory could have sold the​ chocolate-powder liquor base for $ 24 a gallon and the​ milk-chocolate liquor base for $ 9 a gallon.

Requirement 1. Calculate how the joint costs of

$ 68000 would be allocated between chocolate powder and milk chocolate under the different methods.

a. Sales value at splitoff method. Begin by entering the appropriate amounts to allocate the joint costs. ​(Round the weighting amounts to four decimal​ places.)

	Sales value of total		Joint costs
	production at splitoff	Weighting	allocated
Chocolate powder
Milk chocolate
Total

b. Allocate the joint costs using the physical measure method. Begin by entering the appropriate amounts to allocate the joint costs. ​(Round the weighting amounts to four decimal​ places.)

	Physical measure of		Joint costs
	total production	Weighting	allocated
Chocolate powder
Milk chocolate
Total

c. Allocate the joint costs using the net realizable value method. Begin by entering the appropriate amounts to allocate the joint costs. ​(Round the weighting amounts to four decimal places. Round the joint costs allocated to the nearest whole​ dollar.)

	Net realizable		Joint costs
	value	Weighting	allocated
Chocolate powder
Milk chocolate
Total

d. Constant​ gross-margin percentage NRV method. Begin by entering the appropriate amounts to allocate the joint costs. ​(Round the percentage to four decimal​ places, X.XXXX%.)

The overall gross-margin percentage for all joint products together is

%.

Now determine the formula to compute the joint costs​ allocated, then enter the appropriate amounts. ​(Round your answers to the nearest whole​ dollar.)

Total production costs

-

Separable processing costs

=

Joint costs allocated

Chocolate powder

-

=

Milk chocolate

-

=

Requirement 2. What are the​ gross-margin percentages of chocolate powder and milk chocolate under each of the methods in requirement​ 1? ​(Use parentheses or a minus sign when entering negative amounts. Round the percentages to the nearest hundredth​ percent, X.XX%.)

	Chocolate powder		Milk chocolate
a. Sales value at splitoff		%		%

b. Physical-measure

%

%

c. NRV

%

%

d. Constant gross-margin percentage NRV

%

%

Requirement 3. Could

Cocoa Nibs

Edibles Factory have increased its operating income by a change in its decision to fully process both of its intermediate​ products? Show your computations. ​(Use parentheses or a minus sign when entering decreasing​ amounts.)

Begin by determining the formula to compute the​ increase/(decrease) in operating​ income, then enter the appropriate amounts.

					Increase/(decrease)
	Incremental revenue	-	Separable processing costs	=	in operating income

Chocolate powder

-

=

Milk chocolate

-

=

Cocoa Nibs

Edibles Factory could increase operating income if​ chocolate-powder liquor base is

further processed into chocolate powder

and if​ milk-chocolate liquor base is

further processed into milk chocolate.

Answer 1

It purchases cocoa beans and processes them into two intermediate​ products: chocolate-powder liquor base and​ milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point.

c) Net Realizable value method:
	chocolate	milk
	powder	chocolate	Total
Final Sales value of production
14740*12/23980*10	176880	239800	416680
Less: separable processing costs	8975	91095	100070
NRV at split off	167905	148705	316610
Weights	0.5303	0.4697
Joint costs to be allocated
(68000*0.5303 & 0.4697)	36060	31940
d) Constant gross margin percentage NRV method:
Final sales value of total production	416680
Less: joint and separable costs
(68000+8975+91095)	168070
Gross margin	248610
Gross margin %	59.6645%
	chocolate	milk
	powder	chocolate	Total
Final Sales value of production
14740*12/23980*10	176880	239800	416680
Less: Gross margin at 59.6645%	105535	143075	248610
Total production costs	71345	96725	168070
Deduct: separable costs	8975	91095	100070
Joint costs allocated	62370	5630	68000