What is the gross margin for Boissons Barbe-Bleue under methods A, B, C and D of

Question

What is the gross margin for Boissons Barbe-Bleue under methods A, B, C and D of by-product accounting described on p. 2 What are the stock amounts reported in the balance sheet on 30 September 2011 for Pelleas and Melisande under each of the four methods of by-product accounting cited in requirrement 1? 3 Which method would you recommend Boissons Barbe-Bleue to use? Explain. Joint costs and by-products. (W. Crum. adapted) Pohjanmaan Oy processes an ore in Department 1, out of which come three products, I, W and X. Product L is processed further through Department 2. Product W is sold without further processing. Product X is considered a by-product and is processed further through Department 3. Costs in Department 1 are 800 000 in total; Department 2 costs are 100 000; and Department 3 costs are 50 000. Processing 600 000 kg in Department 1 results in 50000 kg of product L, 300 000 kg of product W and 100 000 kg of product X. Product L sells for 10 per kg. Product W sells for 2 per kg. Product X sells for 3 per kg. The company wants to make a gross margin of 10% of sales on product X and also allow 25% for marketing costs on product X. Required 1 Calculate unit costs per kilogram for products L, W and X, treating X as a by-product Use the estimated NRV method for allocating joint costs. Deduct the estimated NBV of the by-product produced from the joint cost of products L and W. 2 Calculate unit costs per kilogram for products L, W and X, treating all three as joint products and allocating costs by the estimated NRV method.

Explanation / Answer

Here in the question, we are given with the following information:

In department 1 , three units are produced:

L 50000 KG @ 10 PER KG

W 300000 KG @ 2 PER KG

X 100000KG @ 3 PER KG

Now, Product L is processed further through department 2 at further cost of 100000

Product X is processed further through department 3 at further cost of 50000

So let us first solve part 1

Product: L W X Total

Units........................................................... 50000 300000 100000 450000

Unit price..........................................................    × $10 × $2   ×$3

Total revenue................................................... $500000 $600000 $300000

Less:Further processing costs................... (100000)    0 (50000)

Less: Marketing cost (0) (0) (75000)

Less: Desired GP - - (30000)

Sales value at Split off point.............................. $400000 $ 600,000 $ 145000   

Allocation %....................................... 40% 60% -

Joint cost allocated(% × ($800000-145000)........ $262000 $ 393000 $145000 $800000

TOTAL MANUFACTURING COST $362000 $393000 $195000

COST PER KG $7.24 $ 1.31 $1.95

#1) COST PER KG = TOTAL MANUFACTURING COST / TOTAL KGS

PART 2

Product: L W X Total

Units........................................................... 50000 300000 100000 450000

Unit price..........................................................    × $10 × $2   ×$3

Total revenue................................................... $500000 $600000 $300000

Less:Further processing costs...................    (100000)    0 (50000)

Less: Marketing cost (0) (0) (75000)

Less: Desired GP - - (30000)

Sales value at Split off point.............................. $400000 $ 600,000 $ 145000   

Allocation %.*...................................... 35% 52% 13% -

Joint cost allocated(% × $800000)........ $280000 $416000    $ 104000 $800000

TOTAL MANUFACTURING COST $ 380000 $ 416000 $ 154000

COST PER KG $ 7.6 $ 1.386 $1.54

#1)* Here I have rounded off the allocation % .

:) Done

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