Cornerstone Exercise 7.11 Allocating Joint Costs Using the Constant Gross Margin
ID: 2492685 • Letter: C
Question
Cornerstone Exercise 7.11
Allocating Joint Costs Using the Constant Gross Margin Method
A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,900. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:
Required:
1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.
2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.
3. What if it cost $2 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.
Cornerstone Exercise 7.11
Allocating Joint Costs Using the Constant Gross Margin Method
A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,900. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:
Required:
1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.
Total Revenue $ Total Costs $ Total Gross Profit $2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.
Joint Cost Product Allocation L-Ten $ Triol Pioze Total $ (Note: The joint cost allocation does not equal $12,900 due to rounding.)3. What if it cost $2 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.
Joint Cost Product Allocation L-Ten $ Triol Pioze Total $ (Note: The joint cost allocation does not equal $12,900 due to rounding.)Explanation / Answer
Answer 1. Revenue L-Ten - 3500 Gallons X $2 7,000 Triol - 4000 Gallons X $5 20,000 Pioze - 2500 Gallons X $6 15,000 Total revenue 42,000 Further Processing Cost L-Ten - 3500 Gallons X $0.50 1,750 Triol - 4000 Gallons X $1 4,000 Pioze - 2500 Gallons X $1.5 3,750 Total Further Processing Cost 9,500 Total Cost Joint Cost 12,900 Total Further Processing Cost 9,500 Total Cost 22,400 Total revenue 42,000 Total Cost 22,400 Total Gross Profit 19,600 Answer 2. Gross Margin Percentage = 19600 / 42000 = 46.67% Gallon Price per Gallon Revenue Gross Margin Percent Allocated Joint Cost L-Ten 3,500 2.00 7,000.00 3,266.67 16.6667% 2,150 Triol 4,000 5.00 20,000.00 9,333.33 47.6190% 6,143 Pioze 2,500 6.00 15,000.00 7,000.00 35.7143% 4,607 Total 10,000 42,000.00 19,600.00 100.0000% 12,900 Answer 3. Further Processing Cost L-Ten - 3500 Gallons X $0.50 1,750 Triol - 4000 Gallons X $2 8,000 Pioze - 2500 Gallons X $1.5 3,750 Total Further Processing Cost 13,500 Total Cost Joint Cost 12,900 Total Further Processing Cost 13,500 Total Cost 26,400 Total revenue 42,000 Total Cost 26,400 Total Gross Profit 15,600 Gross Margin = 15600 / 42000 = 37.14% Gallon Price per Gallon Revenue Gross Margin Percent Allocated Joint Cost L-Ten 3,500 2.00 7,000.00 2,600.00 16.6667% 2,150 Triol 4,000 5.00 20,000.00 7,428.57 47.6190% 6,143 Pioze 2,500 6.00 15,000.00 5,571.43 35.7143% 4,607 Total 10,000 42,000.00 15,600.00 100.0000% 12,900