Question
In: Accounting
In a joint process, Wear Art produces precut fabrics for three products: dresses, jackets, and blouses....
In a joint process, Wear Art produces precut fabrics for three products: dresses, jackets, and blouses.
Joint cost is allocated on the basis of relative sales value at split-off. The company can choose to process each of the products further rather than sell the fabric at split-off. Information related to these products follows.
| Dresses | Jackets | Blouses | Total | |
|---|---|---|---|---|
| Number of units produced | 16,000 | 25,600 | 9,600 | 51,200 |
| Joint cost allocated | ? | $220,800 | ? | $576,000 |
| Sales values at split-off point | ? | $368,000 | $128,000 | $960,000 |
| Additional costs of processing further | $41,600 | $32,000 | $124,800 | $198,400 |
| Sales values after all processing | $480,000 | $428,800 | $336,000 | $1,244,800 |
a. What amount of joint cost should be allocated to dresses and blouses?
| Dresses | Blouses | |
|---|---|---|
| Allocated joint costs |
b. What is the sales value at the split-off point for
dresses?
c. Should any of the products be processed beyond the
split-off point? Show computations.
| Dresses | Jackets | Blouses | |
|---|---|---|---|
| Net benefit (cost) of further processing |
| Process Further? | |
|---|---|
| dresses |
| jackets | |
| blouses |
d. If 19,200 jackets are processed further and sold at the regular selling price, what is the gross profit on the sale?
Solutions
Expert Solution
a.
Joint Cost Allocation
Dresses = $576000 / 960 x 464 = $278400
Blouses = $576000 / 960 x 128 = $76800
b.Sales Value at split off for Dresses = $960000 - 368000 - 128000 = $464000
c.
| Dresses | Jackets | Blouses | |
| Sales Value after processing | $ 480,000 | $ 428,800 | $ 336,000 |
| Sales Value at Split off | $ 464,000 | $ 368,000 | $ 128,000 |
| Incremental Sales Revenue | $ 16,000 | $ 60,800 | $ 208,000 |
| Additional Processing Costs | $ 41,600 | $ 32,000 | $ 124,800 |
| Net benefit (cost) of further processing | $ (25,600) | $ 28,800 | $ 83,200 |
Jackets and Blouses should be processed further
d.
| Sales Revenue | $ 321,600 | =428800/25600*19200 |
| Cost of Goods Sold | $ 189,600 | =(220800+32000)/25600*19200 |
| Gross Profit | $ 132,000 |
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