Question

1. Silver Fashion produces two types of garments: D’Suits and D’Gowns. The two products share common inputs such as textile and yarn. The production of gowns results in a waste product referred to as cut pieces, which Silver Fashion transfers at negligible costs local household workers. In April 2020, the following data were reported for the production and sales of D’Suits and D’Gowns:

	Joint Costs
Joint Costs of Textile and Yarn	$1,000,000
	D’Suits	D’Gowns
Beginning Inventory	0	0
Production(in Units)	4,000	5,000
Sales (in Units)	3,800	4,000
Selling price per unit	$1,200	$3,000

Due to the popularity of its products, Silver Fashion decides to add a new line of products that targets modern couples. These new products are produced by making changes to the style and cut of the original D’Suits and D’Gowns to to be sold under the names S’Suits and S’Gowns respectively. Following are the monthly data for all the products:

	Joint Costs		S’Suits	S’Gowns
Joint Costs of Textile and Yarn	$1,000,000
Separable Costs			$1,800,000	$4,500,000
	D’Suits	D’Gowns	S’Suits	S’Gowns
Beginning Inventory	0	0	0	0
Production (in Units)	4,000	6,000	4,000	6,000
Transfer to further process (in Units)	4,000	6,000
Sales (in Units)			4,000	6,000
Selling price per unit	$1,200	$2,200	$2,000	$3,000

Required:

1. Show the diagram to represent the joint cost and joint products
2. Prepare the Joint cost allocation and the Income Statement of Silver Fashion for S’Suits and S’Gowns using the following methods:
   1. Physical-measure method

Net realizable value method                        

Answer 1

Show the diagram to represent the joint cost and joint products

Prepare the Joint cost allocation and the Income Statement of Silver Fashion for S’Suits and S’Gowns using the following methods:

Physical-measure method

Under the physical unit measure method, units at the split of point are used to allocate joint cost.

Cost allocation

Total joint cost = $1000000

Units production of D’Suits = 4000 units

Units production of D’Gowns = 6000 units

Total units = 10000 units

Joint cost allocated to D’ Suits = 1000000 * 4000 / 10000 = $400000

Joint cost allocated to D’ Gowns = 1000000 * 6000 / 10000 = $600000

Income statement

	S’ Suits	S’ gowns	Total
Sales	$8000000	$18000000	$26000000
Joint cost	400000	600000	1000000
Separable cost	1800000	4500000	6300000
Profits	5800000	12900000	$18700000

Net realizable value method  

Under the Net realizable value method, the joint cost are allocated based on Net realizable value of each product, which means selling price at further process less separable cost.

NRV = sales value after further process - Separable cost

Product = Suits

sales value after further process = $2000 price per units for 4000 units = $8000000

Separable cost = $1800000

NRV = $8000000 - $1800000 = $6200000

Product = Gowns

sales value after further process = $3000 price per units for 6000 units = $18000000

Separable cost = $4500000

NRV = $18000000 - $4500000 = $13500000

Total base NRV = $6200000 + $13500000 = $19700000

Joint cost allocated to Suits = 1000000 / 19700000 * 6200000 = $314721

Joint cost allocated to Gowns = 1000000 / 19700000 * 13500000 = $685279

Income statement

	S’ Suits	S’ gowns	Total
Sales	$8000000	$18000000	$26000000
Joint cost	314721	685279	1000000
Separable cost	1800000	4500000	6300000
Profits	5885279	12814721	$18700000