Joint cost allocation, ending work in process inventories. Tastee Freez, Inc., p
ID: 2482296 • Letter: J
Question
Joint cost allocation, ending work in process inventories. Tastee Freez, Inc., produces two specialty ice cream mix flavors for soft serve ice cream machines. The two flavors. Extreme Chocolate and Very Strawberry, both start with a vanilla base. The vanilla base can be sold for $2 per gallon. The company did not have any beginning inventories but produced 8,000 gallons of the vanilla base during the most recent month at a cost of $5,200. The 8,000 gallons of base was used to begin production of 5,000 gallons of Extreme Chocolate and 3,000 gallons of Very Strawberry. At the end of the month, the company had some of its ice cream mix still in process. There were 1, 200 gallons of Extreme Chocolate 30% complete and 200 gallons of Very Strawberry 80% complete. Processing costs during the month for Extreme Chocolate and Very Strawberry were $9,152 and $8,880, respectively. The selling prices for Extreme Chocolate and Very Strawberry are $4 and $5, respectively. Allocate the joint costs to Extreme Chocolate and Very Strawberry under the following methods: Sales value at splitoff Net realizable value Constant gross margin percentage NRV Z Compute the gross margin percentages for Extreme Chocolate and Very Strawberry under each of the methods in requirement 1.Explanation / Answer
Sales value at splitoff method: Extreme Chocolate Very Strawberry Total 5000 3000 Selling Price at split of Point 2 2 Sales value At split of Point 10000 6000 16000 Weight 62.5% 37.5% Joint costs allocated 3250 1950 5200 b. Net realizable value method: Chocolate: Production started 5000 Gallons in ending work in process 1200 Gallons started and completed 3800 Gallons in ending work in process 1200 Percent complete 30% Equivalent whole gallons completed 360 Total equivalent gallons completed 4,160 (3,800 + 360) Processing cost for the month $9,152 Cost per equivalent whole gallon $2.20 ($9,152 ÷ 4,160) Total separable costs associated with 5,000 gallons = 5,000 × $2.20 = $11,000 Strawberry: Production started 3000 Gallons in ending work in process 200 Gallons started and completed 2800 Gallons in ending work in process 200 Percent complete 80% Equivalent whole gallons completed 160 Total equivalent gallons completed 2,960 (2,800 + 160) Processing cost for the month $8,880 Cost per equivalent whole gallon $3.00 ($8,880 ÷ 2,960) Total separable costs associated with 3,000 gallons = 3,000 × $3.00 = $9,000 Extreme Chocolate Very Strawberry TotAL Final sales value, 5,000 × $4; 3,000 × $5 20000 15000 35000 Deduct final separable costs 11000 9000 20000 Net realizable value 9000 6000 15000 Weighting, $9,000; $6,000 ÷$15,000 0.6 0.4 Joint costs allocated, 0.60; 0.40 × $5,200 3120 2080 5200 c. Constant gross-margin percentage NRV method: Final sales value of total production 35000 Deduct joint and separable costs, ($5,200 + $20,000) 25200 Gross margin 9800 Gross-margin percentage ($9,800 ÷ $35,000) 28% Extreme Chocolate Very Strawberry TotAL Final sales value, 5,000 × $4; 3,000 × $5 20000 15000 35000 Deduct gross margin, using overall gross-margin percentage of sales (28%) 5600 4200 9800 Total production costs 14400 10800 25200 Deduct final separable costs 11000 9000 20000 3400 1800 5200 Extreme Chocolate Very Strawberry Gross Margin before joint cost allocations, $20,000 - $11,000; $15,000 - $9,000 9000 6000 Gross Margin Gross Margin % Gross Margin Gross Margin % Sales value at splitoff, $9,000 - $3,250; $6,000 - $1,950 5750 28.75% 4050 27% Net realizable Value, $9,000 – $3,120; $6,000 - $2,080 5880 29.40% $3,920 26.13% Constant gross margin % NRV, $9,000 - $3,400; $6,000 - $1,800 5600 28.00% $4,200 28.00%
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