allocates joint costs using physical units method, sales value at split off meth
ID: 2340716 • Letter: A
Question
allocates joint costs using physical units method, sales value at split off method, NRV method, and constant gross margin method.
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Betty's Beauty Supply Company purchases a Cremex which is then processed to yield three moisturizing lotions Angelic Crème, Ageless Crème and Antique Crème. In February, Betty purchased 10,000 gallons of Cremex at a cost of $250,000, and the company incurred $100,000 of additional joint conversion costs. June sales and production information are as follows: Gallons Produced Sales Price at Split- 0 Further Processing Cost per Gallon Final Sales $55 $40 $30 Price $55 $40 $60 $0 Angelic Crème 2,000 Ageless Crème 3,000 Antique Crème 5,000 $5 Angelic and Ageless can be sold to other beauty supply stores at the split-off point. Antique can be sold at the split- off point or processed further and packaged for sale as an asthma medication. Allocate the $350,000 of joint cost to the three lotions using Physical units method Sales value at split off method NRV method Constant gross margin method Physical Units Method Sales Value at Split Off Method NRV Method Constant Gross Margin Method Angelic Crème Ageless Crème Antique CrèmeExplanation / Answer
Sales Value at
Split off Method
NRV
Method
Constang Gross
Margin Method
Explanation
1. Physical Units Method
Cost Allocated to a Joint Product =(Quantity of the Product / Quantity of Total Production) × Total Joint Costs
Quantity of Total Production = 2000 + 3000 + 5000 = 10000 Gallons
For Angelic Creme = ( 2000 / 10000 ) * $ 350,000
= $ 70,000
For Ageless Creme = ( 3000 / 10000 ) * $ 350,000
= $ 105,000
For Antique Creme = ( 5000 / 10000 ) * $ 350,000
= $ 175,000
2. Sales Value at Split off Method
(2000 gallan * $ 55), (3000 * $ 40).
(5000 * $ 30)
Cost Allocated to a Joint Product = Sale Value of the Product / Total Sales Value * Total Joint Cost
For Angelic = $ 110,000 / $ 380,000 * $ 350,000
= $ 101,316
For Ageless = $ 120,000 / $ 380,000 * $ 350,000
= $ 110,526
For Antique = $ 150,000 / $ 380,000 * $ 350,000
= $ 138,158
3. NRV (Net Realization Method )
Cost Allocated to a Joint Product = NRV of a Product / NRV of Total Production * Total Joint Cost
where NRV of Product = (Final Sales Value - Cost of Further processing) * no. of gallons produced
NRV for Angelic Creme = ($ 55 - $ 0) * 2000 gallons = $ 110,000
NRV for Ageless Creme = ($ 40 - $ 0) * 3000 gallons = $ 120,000
NRV for Antique Creme = ( $ 60 - $ 5) * 5000 gallons = $ 275,000
NRV of Total Production = $ 110,000 + $ 120,000 + $ 275000
= $ 505,000
Cost Allocated to Joint product usin NRV Method
For Angelic Creme = $ 110,000 / $ 505,000 * $ 350,000
= $ 76,238
For Ageless Creme = $ 120,000 / $ 505,000 * $ 350,000
= $ 83,168
For Antiqur Creme = $ 275,000 / $ 505,000 * $ 350,000
= $ 190,594
4. Constant Gross Margin Method
To calculate overall gross Margin
Total Sales $ 530,000 ( 2000* $55 + 3000 * $40 + 5000 * $ 60 )
Less : Total Joint Cost $ 350,000
Less : Cost of Further Processing $ 25,000 ( 5000 gallons * $ 5 )
Gross Margin $ 155,000
Gross Margin Percentage = $ 155,000 / $ 530,000 * 100
= 29.2453 %
$ 32,170
(32,170 * 155/530)
$ 35,094
(35,094 * 155/530)
$ 87,736
(87.736* 155/530)
Physical Units MethodSales Value at
Split off Method
NRV
Method
Constang Gross
Margin Method
Angelic Creme $ 70,000 $ 101,316 $ 76,238 $ 77,830 Ageless Creme $ 105,000 $ 110,526 $ 83,168 $ 84,906 Antique Creme $ 175,000 $ 138,158 $ 190,594 $ 187,264Related Questions
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