Question

ABC, Inc produces 2 products, Prime(P) and Secondo(S), from a single input. Further processing of product Prime(P) results in a by-product (BP). A summary of production and sales for the year follows:

• In the joint production process, 510,000 pounds of raw material was processed, spending $520,000.

• 60% of the joint process output was transferred to Division I to produce Prime, and 40 % of the joint process output was transferred to Division II to produce Secondo

• Further processing in Division I resulted in 70% of the input pounds becoming Prime and 30% of the input pounds becoming By-Product BP. The separate processing cost for Prime in Division I was 649,026.

• Total packaging costs for Prime were $122,094. After Division I processing and packaging, product Prime is salable at $8.00 per pound.

• Each pound of By-Product BP can be sold for $0.25 after incurring a total selling cost of $5,000. The company accounts for By-Product BP using the NRV method and showing the NRV to reduce the cost of goods sold of the joint products.

• In division II, Secondo was further processed at a separate cost of $387,600. A completed pound of Secondo sells for $4.70

• Selling (marketing) costs for Prime and Secondo are $0.80 per pound and $0.15 per pound.

Required:

a) Allocate the joint cost to products Prime and Secondo, using NRV at split-off.

b) There were no beginning Work-in-Process and Finished Goods inventories. Determine the gross margin for ABC, Inc. assuming that

• 80 percent of Prime and 90 percent of Secondo produced were sold.

• All By-Product BP that was produced during the year were sold.

• Joint cost was allocated using the physical measurements.  

Answer 1

Ans-(a)

Joint Cost Allocation (NRV at Split Off method)

Ans-(b)

Allocation of Joint Cost basis Physical Measure

GROSS MARGING CALCULATIONS