Question

Allocating Joint Costs Using the Constant Gross Margin Method

A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,800. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:

Product	Gallons	Further Processing Cost per Gallon	Eventual Market Price per Gallon
L-Ten	3,600	$0.50	$2.00
Triol	4,000	1.00	5.00
Pioze	2,400	1.50	6.00

Required:

1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.

Total Revenue	$
Total Costs	$
Total Gross Profit	$

2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

	Joint Cost
Product	Allocation
L-Ten	$
Triol
Pioze
Total	$

(Note: The joint cost allocation does not equal due to rounding.)

Answer 1

Product	Gallons	Further Processing	Eventual Market
		Cost per Gallon	Price per Gallon
L-Ten	3,600	0.5	2
Triol	4,000	1	5
Pioze	2,400	1.5	6
	L-Ten	Triol	Pioze	Total
Total Revenue	7,200	20,000	14,400	41,600
Total cost	1,800	4,000	3,600	9,400
Gross Profit	5,400	16,000	10,800	32,200
Gross Margin %	0.1677	0.4969	0.3354	1.0000
Joint Cost
Product	Allocation
L-Ten	2,146.56
Triol	6,360.32
Pioze	4,293.12
Total	12,800.00