Question

The Cocoa Mass Edibles Factory manufactures and distributes chocolate products

Additional Information:

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 2,000 pounds of cocoa beans yields 50 gallons of​ chocolate-powder liquor base and 50 gallons of​ milk-chocolate liquor base. The​ chocolate-powder liquor base is further processed into chocolate powder. Every 50 gallons of​ chocolate-powder liquor base yield 650 pounds of chocolate powder. The​ milk-chocolate liquor base is further processed into milk chocolate. Every 50 gallons of​ milk-chocolate liquor base yield 1,070 pounds of milk chocolate.

Production and sales data for August 2017 are as follows​ (assume no beginning​ inventory):

- Cocoa beans​ processed, 22,800 pounds times

- Costs of processing cocoa beans to splitoff point​ (including purchase of​ beans), $62,000

	Production	Sales	Selling Price	Separable Processing Costs
Chocolate powder	9,100 pounds	6,500 pounds	$ 9 per pound	$ 50,100
Milk chocolate	14,980 pounds	13,500 pounds	$ 10 per pound	$ 60,115

Cocoa Mass 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​, Cocoa Mass Edibles Factory could have sold the​ chocolate-powder liquor base for $20 a gallon and the​ milk-chocolate liquor base for $60 a gallon.

Question:

1. Calculate how the joint costs of $62,000 would be allocated between chocolate powder and milk chocolate under the following​ methods:

a. Sales value at splitoff

b. Physical measure​ (gallons)

c. NRV​ (Net Realizable​ Value)

d. Constant​ gross-margin percentage NRV

2. What are the​ gross-margin percentages of chocolate powder and milk chocolate under each of the methods in requirement​ 1?

3. Could Cocoa Mass Edibles Factory have increased its operating income by a change in its decision to fully process both of its intermediate​ products? Show your computations.

Answer 1