Question

7-45

Johnson adhesives company makes three widely used industrial adhesives: A101, A 204 and B216 sales and production information for each of the three adhesives are shown in the following table. Most of johnsons customers ask for a special blend of the three products which improves heat-resistance. The aditional separable processing requires additional time and materials, and the price is increased accordingly as shown in the table. Assume that johnson produces only for specific customer orders, so there is no beginning or ending inventory. Assume also that all of johnsons customers requested the heat resistant version of the product, so that all production required additional separable processing. Total joint cost for the three products is $3,500,000

Galloons sold 175,000 135,000 115,000 A101 A204 B216

Price/gal (after addit'l processing) 14 10 12

price at split-off 10 5 10

separable processing cost 550,000 125,000 625,000

required: Using 4 or more decimal points avoid rounding error, calculate the product cost and gross margin for each of the the three product lines using the following methods:

a.) physical unit method b.) sales value at split off method c.) the net realizable value method

2.) which of the four methods do you think would be preffered in this case? Why?

Answer 1