Question

Canada Wire Products processes copper into wire. It makes 16-gauge and 14-gauge wire. During April, the joint costs of processing the aluminium were $365,000. There were no beginning or ending inventories for the month. Production and sales value information for the month were as follows:

Product	Feet	Separable costs	Selling price
14 gauge	200,000	$0.20 per metre	$0.90 per metre
16 gauge	600,000	0.30 Per metre	1.00 per metre

Determine the amount of joint costs allocated to each product using the net realizable value method and the constant gross margin percentage of the NRV method. (show work for full mark)

Answer 1

Joint Cost Method:

Product	14 Gauge	16 Gauge	Total
Selling Price (A)	0.90	1.00
Separable Cost (B)	0.20	0.30
NRV (in units) (C=A*B)	0.70	0.70
Units (D)	2,00,000	6,00,000
NRV (in value) (C*D)	1,40,000	4,20,000	5,60,000
Ratio	0.25	0.75
	140000/560000	420000/560000
Joint Cost Allocation	91,250	2,73,750	3,65,000	365000 divided in 25% and 75%

Constant Gross Margin Method -

Product	14 Gauge	16 Gauge	Total
Units (A)	2,00,000	6,00,000
SP (B)	0.90	1.00
Revenue (C=A*B)	1,80,000	6,00,000	7,80,000
Separable Cost per unit (D)	0.20	0.30
Total Separable Cost (E=D*A)	40,000	1,80,000	2,20,000
Joint Cost (F)			3,65,000
Gross Margin (G=C-E-F)			1,95,000
Gross Margin % (H=G/C)			25%
Revenue	1,80,000	6,00,000	7,80,000
Less Gross Margin @ 25%	45,000	1,50,000	1,95,000
Net (I)	1,35,000	4,50,000	5,85,000
Separable Cost ('E)	40,000	1,80,000	2,20,000
Joint Cost allocation (I-E)	95,000	2,70,000	3,65,000

Please Upvote and Support!!