The South Oil Company buys crude vegetable oil. Refining this oil results in fou
ID: 2521119 • Letter: T
Question
The South Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point.? A, B,? C, and D. Product C is fully processed by the splitoff point. Products? A, B, and D can individually be further refined into Super? A, Super? B, and Super D. In the most recent month? (December), the output at the splitoff point was as? follows:
Requirements:
Compute the? gross-margin percentage for each product sold in? December, using the following methods for allocating the $100,000 joint? costs:
a.
Sales value at splitoff
b.
?Physical-measure
c.
NRV
2. Could South have increased its December operating income by making different decisions about the further processing of products? A, B, or? D? Show the effect on operating income of any changes you recommend.
The joint costs of purchasing and processing the crude vegetable oil were $100,000. South had no beginning or ending inventories. Sales of product C in December were $50,000.
Products? A, B, and D were further refined and then sold. Data related to December are as? follows:
Separable Processing Costs
to Make Super Products
Revenues
Super A
$100,000
$200,000
Super B
80,000
100,000
Super D
95,000
125,000
South had the option of selling products? A, B, and D at the splitoff point. This alternative would have yielded the following revenues for the December? production:
Product? A, $50,000
Product? B, $30,000
Product? D, $70,000
a.
Sales value at splitoff
b.
?Physical-measure
c.
NRV
Explanation / Answer
Solution 1a:
Solution 1b:
Solution 1c:
Solution 2:
Allocation of Joint Cost & Computation of Gross Margin - Sale Value at Split off Point Particulars Super A Super B C Super D Total Sale Value at Split off point $50,000 $30,000 $50,000 $70,000 $200,000 Allocation of Joint CostA - 100000*50/200
B - 100000*30/200
C - 100000*50/200
C - 100000*70/200 $25,000 $15,000 $25,000 $35,000 $100,000 Sales (A) $200,000.00 $100,000.00 $50,000.00 $125,000.00 $475,000.00 Joint Cost (B) $25,000 $15,000 $25,000 $35,000 $100,000 Further Processing Cost ( C ) $100,000.00 $80,000.00 $0.00 $95,000.00 $275,000.00 Gross Margin (D) (A-B-C) $75,000 $5,000 $25,000 -$5,000 $100,000
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