Question
In: Accounting
Allocating Joint Costs Using the Constant Gross Margin Method A company manufactures three products, L-Ten, Triol,...
Allocating Joint Costs Using the Constant Gross Margin Method
A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,900. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:
Product |
Gallons | Further Processing Cost per Gallon |
Eventual
Market Price per Gallon |
| L-Ten | 3,500 | $0.50 | $ 2.00 |
| Triol | 4,000 | 1.00 | 5.00 |
| Pioze | 2,500 | 1.50 | 6.00 |
Required:
1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.
| Total Revenue | $ |
| Total Costs | $ |
| Total Gross Profit | $ |
2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.
| Joint Cost | |
| Product | Allocation |
| L-Ten | $ |
| Triol | |
| Pioze | |
| Total |
(Note: The joint cost allocation does not equal $12,900 due to rounding.)
3. What if it cost $2 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.
| Joint Cost | |
| Product | Allocation |
| L-Ten | $ |
| Triol | |
| Pioze | |
| Total |
(Note: The joint cost allocation does not equal $12,900 due to rounding.)
Solutions
Expert Solution
| Answer 1: | |||
| Product | Galloons | Further costs | Futher cost |
| total | |||
| L Ten | 3500 | 0.5 | 1750 |
| Triol | 4000 | 1 | 4000 |
| pioze | 2500 | 1.5 | 3750 |
| Joint cost | 12900 | ||
| Total cost | 22400 | ||
| Product | Galloons | Market price | Market value |
| L Ten | 3500 | 2 | 7000 |
| Triol | 4000 | 5 | 20000 |
| pioze | 2500 | 6 | 15000 |
| Total Revenue | 42000 |
Gross profit = Total Revenue - total cost
Gross profit = 42000 - 22400
Gross profit = 19600
Answer 2 )
Gross margin percentage = Total gross profit * 100 / total revenue
Gross margin percentage = 19600 * 100 / 42000
Gross margin percentage = 46.66%
| A | B = A * GM % | C | D = A - B- C | |
| Product | market Value | Gross margin | Futher cost | Joint cost allocated |
| L Ten | 7000 | 3267 | 1750 | 1983 |
| triol | 20000 | 9333 | 4000 | 6667 |
| Pioze | 15000 | 7000 | 3750 | 4250 |
| 12900 |
Answer3 )
| Product | gallons | Futher cost | Futher cost ( Total) |
| L ten | 3500 | 0.5 | 1750 |
| Triol | 4000 | 2 | 8000 |
| Pioze | 2500 | 1.5 | 3750 |
| Joint cost | 12900 |
Total cost = 1750 + 8000 + 3750 + 12900 = 26400
Total revenue = 42000
Gross profit = total revenue - total cost
Gross profit = 42000 - 26400
Gross profit = 15600
Gross margin percentage = 15600 * 100 / 42000
Gross margin percentage= 37.14%
| A | B = A * GM % | C | D = A - B- C | |
| Product | market Value | Gross margin | Futher cost | Joint cost allocated |
| L Ten | 7000 | 2600 | 1750 | 2650 |
| triol | 20000 | 7429 | 8000 | 4571 |
| Pioze | 15000 | 5571 | 3750 | 5679 |
| 12900 |
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Method
A company manufactures three products, L-Ten, Triol, and Pioze,
from a joint process. Each production run costs $12,900. None of
the products can be sold at split-off, but must be processed
further. Information on one batch of the three products is as
follows:
Product
Gallons
Further Processing
Cost per Gallon
Eventual
Market
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L-Ten
3,500
$0.50
$ 2.00
Triol
4,000
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5.00
Pioze
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A company manufactures three products, L-Ten, Triol, and Pioze,
from a joint process. Each production run costs $12,900. None of
the products can be sold at split-off, but must be processed
further. Information on one batch of the three products is as
follows:
Product
Gallons
Further Processing
Cost per Gallon
Eventual
Market
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L-Ten
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