In a joint process, Wear Art produces precut fabrics for three products: dresses

Question

In a joint process, Wear Art produces precut fabrics for                 

                    three products: dresses, jackets, and blouses. Joint cost is allocated on the basis of relative                 

                    sales value at split-off. The company can choose to process each of the products further                 

                    rather than sell the fabric at split-off. Information related to these products follows.                 

                    Dresses Jackets Blouses Total                 

                    Number of units produced 10,000 16,000 6,000 32,000                 

                    Joint cost allocated ? $138,000 ? $360,000                 

                    Sales values at split-off point ? $230,000 $ 80,000 $600,000                 

                    Additional costs of processing further $ 26,000 $ 20,000 $ 78,000 $124,000                 

                    Sales values after all processing $300,000 $268,000 $210,000 $778,000                 

                    a. What amount of joint cost should be allocated to dresses and blouses?                 

                    b. What is the sales values at the split-off point for dresses?                 

                    c. Should any of the products be processed beyond the split-off point? Show                 

                    computations.                 

                    d. If 12,000 jackets are processed further and sold at the regular selling price, what is                 

                    the gross profit on the sale

Explanation / Answer

DRESSES JACKETS BLOUSE TOTAL UNITS 10000 16000 6000 32000 JOINT ALLOCATED COST 174000 138000 48000 360000 SALES VALUE AT SPLIT OFF 290000 230000 80000 600000 ADDITIONAL PROCCESING COST 26000 20000 78000 124000 SALES VALUE AFTER PROCESSING 300000 268000 210000 778000 a. What amount of joint cost should be allocated to dresses and blouses? DRESSES (360000/600000)*290000 174000 BLOUSE (360000/600000)*80000 48000 b. What is the sales values at the split-off point for dresses? DRESSES 600000-230000-80000 290000 c. Should any of the products be processed beyond the split-off point? Show YES JACKETS AND BLOUSE SHOULD BE PROCCESED AS SALES VALUE INCREASES DRESSES INCREAMENTAL COST IS MORE THAN INCREASE IN SALES VALUE, SO THAT SHOULD NOT BE PROCESSED 26000>10000 d. If 12,000 jackets are processed further and sold at the regular selling price, what is the gross profit on the sale ADDITIONAL COST ON 12000 JACKETS = (20000/16000)*12000 15000 SALES VALUE AFTER PROCESSING = (268000/16000)*12000 201000 JOINT COST 103500 THUS GROSS PROFIT 82500

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