Question

TOPRAK A.Ş. After the separation point, they produce G10 and H8 products, and after the additional cost expense of 15.000 TL for G10 product and 45.000 TL for H8 product, new product is produced under the names Super G10 and Super H8. 250 kg from Super G10 and 400 kg from Super H8 are produced. The sales price of Super G10 is 400TL / kg, and the sales price of Super H8 is 800 TL / kg. Total combined costs up to the point of separation are 255.000 TL.

If desired, G10 product can be sold for 30.000 TL, and H8 product can be sold for 70.000 TL, at the point of separation.

According to these data;

a) Distribute the combined cost using the gross profit rate method.

b) In your opinion, should the enterprise subject G10 and H8 products to additional production? Please explain.

c) Distribute the combined cost with the assumption that 420 kg of secondary products are available, with a market value of 10TL / kg before the separation point.

Answer 1

1. Distribution of cost using Gross profit rate method
	Super G10	Super H8	Combined
Sales Price	400	800
Production	250	400
Total Sales Price	100,000	320,000	420,000
Total Combined cost			255,000
Gross Profit			165,000
Gross Profit Rate (%) (GP/Total sales)			39%
Gross Profit using combined rate (Sales*GP rate)	39,286	125,714	165,000
Distribution of cost (sales - GP)	60,714	194,286	255,000

2. Decision for additional production of G10 and H8
	G10	H8
Sales Value	30,000	70,000
Cost at the separation point	15,000	45,000
Gross Profit (sales - cost)	15,000	25,000
Gross Profit margin (%) (GP/sales)	50%	36%
Gross Profit margin of Super G10/H8	39%	39%
Margin/(deficit)	-11%	3%
Decision	Do not process further	Process Further

Since, the Gross profit margin of G10 is more than the margin of SuperG10, it is adviced not to be processed further, similarly since SuperH8 yeilds higher GP margin H8 should be processed further.

3.Distribution of combined costs on availability of secondary material

	Super G10	Super H8	Secondary products	Combined
Sales Price	400	800	10
Production	250	400	420
Total Sales Price	100,000	320,000	4,200	424,200
Total Combined cost				255,000
Gross Profit				169,200
Gross Profit Rate (%) (GP/Total sales)				40%
Gross Profit using combined rate (Sales*GP rate)	39,887	127,638	1,675	169,200
Distribution of cost (sales - GP)	60,113	192,362	2,525	255,000