Question

The Marshall Company has a joint production process that produces two joint products and a by-product. The joint products are Ying and Yang, and the by-product is Bit. Marshall accounts for the costs of its products using the net realizable value method. The two joint products are processed beyond the split-off point, incurring separable processing costs. There is a $1,000 disposal cost for the by-product. A summary of a recent month’s activity at Marshall is shown below:

	Ying				Yang				Bit
Units sold		50,000				40,000				10,000
Units produced		50,000				40,000				10,000
Separable processing costs—variable	$	140,000			$	42,000			$	—
Separable processing costs—fixed	$	10,000			$	8,000			$	—
Sales price	$	6.00			$	12.50			$	1.60

Total joint costs for Marshall in the recent month are $265,000, of which $115,000 is a variable cost.

Required:

1. Calculate the manufacturing cost per unit for each of the three products. (Round manufacturing cost per unit answers to 2 decimal places.)
2. Calculate the total gross margin for each product.

Answer 1

Joint cost to be allocated among Ying and Yang :

Joint cost		$265,000
Less: sales of by product		$16,000($1.6*10,000)
Add: disposal cost		$1,000
Total cost to be allocated		$250,000

1. we will first allocate joint cost

As per NRV method joint cost is allocated on the basis of ratio of NRV (Sales-Separable costs)

	Ying	Yang	Total
sales price	$300,000(50,000*$6)	$500,000($12.5*40,000)	$800,000
Less: separable costs	$150,000($140,000+10,000)	$50,000($42,000+$8,000)	$200,000
Net realizable value	$150,000 [$300,000-$150,000]	$450,000 [$500,000-$50,000]	$600,000
Proportion	0.25($150,000/$600,000)	0.75 ($450,000/600,000)
Joint cost allocated	$62,500[250,000*0.25)	$187,500	$15,000 [$265,000-$62,500-$187,500]

Manufacturing cost

	Ying	yang	bit
separable joint cost	$3($150,000/50,000 units)	$1.25($50,000/40,000units)	-
Allocated joint costs	$1.25($62,500/50,000 units)	$4.69($187,500/40,000 units)	15,000
manufacturing costs per unit	$4.25($3+$1.25)	$5.94[$1.25+$4.69]	$1.5[$15,000/10,000 units]

2. Gross margin = total sales- total manufacturing cost

	Ying	Yang	Bit
sales	$300,000	$500,000	$16,000(10,000*$1.6)
Less: manufacturing costs	$212,500[$150,000+$62,500]	$237,500[$187,500+$50,000]	$15,000
Gross Margin	$87,500 [$300,000-$212,500]	$262,500[$500,000-$237,500]	$1,000