Question

Acme Corporation incurred $6,000 to produce the following products in a joint production process

	Product X	Product Y
Quantity produced and processed beyond split-off point	230 units	490 units
Sales Value at split-off	$75	$15.50
Separable Costs	$1,000	$2,800
Selling price of a fully processed unit	$80	$20

Compute the amount of joint costs using:

1. physical measures method

2. sales value at split-off method

3. NRV method

4. constant gross margin method

Answer 1

Answer-1:

Allocation of joint cost under Physical Measures Method:

Joint cost allocated to Product X = 230 / 720 × $6,000 = $1,917

Joint cost allocated to Product Y = 490 / 720 × $6,000 = $4,083

Answer-2:

Allocation of joint cost under Sales value at Split-off Method:

Sales value of product X = 230 × $75 = $17,250

Sales value of product Y = 490 × $15.50 = $7,595

Total sales value = $17,250 + 7,595 = $24,845

Joint cost allocated to Product X = $17,250 / $24,845 × $6,000 = $4,166

Joint cost allocated to Product Y = $7,595 / $24,845 × $6,000 = $1,834

Answer-3:

Allocation of joint cost under NRV Method:

NRV of product X = (230 × $80) - $1,000 =$18,400 - $1,000 = $17,400

NRV of product Y = (490 × $20) - $2,800 =$9,800 - $2,800 = $7,000

Total sales value = $17,400 + 7,000 = $24,400

Joint cost allocated to Product X = $17,400 / $24,400 × $6,000 = $4,279

Joint cost allocated to Product Y = $7,000 / $24,400 × $6,000 = $1,721

Answer-4:

Allocation of joint cost under Gross Margin Method:

Sales revenue: $18,400 + $9,800 = $28,200

Less: Cost of goods sold:

          Joint cost             $6,000

          Separable cost    $3,800           $9,800

          Gross margin                          $18,400

Gross margin percentage = $18,400 / $28,200 × 100 = 65.25%