MediaForum has three operating groups: Games, News, and Documentaries. In May, t
ID: 2428089 • Letter: M
Question
MediaForum has three operating groups: Games, News, and Documentaries. In May, the company incurred $24,000,000 of joint cost for facilities and administration. May revenues and separate production costs of each group are as follows:
Games News Documentaries
Revenue $35,840,000 $30,720,000 $189,440,000
Separate costs $32,960,000 $16,320,000 $110,720,000
a. What amount of joint cost is allocated to each operating group using the net realizable value approach?
Allocated Costs
Games $
News $
Documentaries $
Compute the profit for each operating area after the allocation.
Net Profit
Games $
News $
Documentaries $
b. What amount of joint cost is allocated to each operating group if the allocation is based on revenues?
Allocated Costs
Games $
News $
Documentaries $
Compute the profit for each operating group after the allocation. Show any losses as negative numbers.
Net Profit
Games $
News $
Documentaries $
Explanation / Answer
a. Games News Documentaries Revenues $35,980,000 $30,720,000 $189,440,000 Separate costs $32,960,000 $16,320,000 $110,720,000 Joint costs $753,900 $3,594,758 $19,651,342 Total cost $33,713,900 $19,914,758 $130,371,342 Net income $2,266,100 $10,805,242 $59,068,658 Net realizable value $3,020,000 $14,400,000 $78,720,000 joint cost $24,000,000 Net realizable value ratio $3,020,000 $14,400,000 $78,720,000 Games share in joint cost=24000000*3020000/96140000 $753,900 New share in joint cost =24000000*14400000/96140000 $3,594,758.00 Documentaries share=24000000*78720000/96140000 $19,651,342.00 b. Allocation of joint costs using Revenue as basis Games News Documentaries Revenues $35,980,000 $30,720,000 $189,440,000 Separate costs $32,960,000 $16,320,000 $110,720,000 Joint costs $3,371,281 $2,878,426 $17,750,293 total cost $36,331,281 $19,198,426 $128,470,293 Net income ($351,281) $11,521,574 $60,969,707 Joint cost $24,000,000 Revenue ratio $35,980,000 $30,720,000 $189,440,000 Games share in joint cost=24000000*35980000/256140000 $3,371,281 News share in joint cost=24000000*16320000/256140000 $2,878,426 Documentaries share=24000000*189440000/256140000 $17,750,293