Alternative methods of joint-cost allocation, product-mix decisions. The Chicago 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 (November), the output at the splitoff point was as follows:
- Product A, 550,000 gallons
- Product B, 200,000 gallons
- Product C, 150,000 gallons
- Product D, 100,000 gallons
The joint costs of purchasing and processing the crude vegetable oil were $210,000. Chicago had no beginning or ending inventories. Sales of product C in November were $90,000. Products A, B, and D were further refined and then sold. Data related to November are as follows:
Separable |
Revenues | |
Super A | $480,000 | $750,000 |
Super B | 120,000 | 300,000 |
Super D | 90,000 | 150,000 |
Chicago had the option of selling products A, B, and D at the splitoff point. This alternative would have yielded the following revenues for the November production:
- Product A, $150,000
- Product B, $125,000
- Product D, $135,000
-
- 1. Compute the gross-margin percentage for each product sold in November, using the following methods for allocating the $210,000 joint costs:
Required
- a. Sales value at splitoff
- b. Physical measure
- c. NRV
- 2. Could Chicago Oil have increased its November 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
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HORGREN'S COST ACCOUNTING
- Oakes Inc. manufactured 40,000 gallons of Mononate and 60,000 gallons of Beracyl in a joint production process, incurring 250,000 of joint costs. Oakes allocates joint costs based on the physical volume of each product produced. Mononate and Beracyl can each be sold at the split-off point in a semifinished state or, alternatively, processed further. Additional data about the two products are as follows: An assistant in the companys cost accounting department was overheard saying ...that when both joint and separable costs are considered, the firm has no business processing either product beyond the split-off point. The extra revenue is simply not worth the effort. Which of the following strategies should be recommended for Oakes?arrow_forwardJoint cost allocation McKenzies Soap Sensations, Inc., produces hand soaps with three different scents: morning glory, snowflake sparkle, and sea breeze. The soap is produced through a joint production process thatcosts 30,000 per batch. Each batch produces 14,800 bottles of morning glory hand soap, 12,000bottles of snowflake sparkle hand soap, and 10,000 bottles of sea breeze hand soap at the split-offpoint. Each product is processed further after the split-off point, but the market value of a bottle ofany of the flavors at this point is estimated to be 1.25 per bottle. The additional processing costsof morning glory, snowflake sparkle, and sea breeze hand soap are 10.50, 0.55, and 0.60 perbottle, respectively. Morning glory, snowflake sparkle, and sea breeze hand soap are then sold for2.00, 2.20, and 2.40 per bottle, respectively. Instructions 1. Using the net realizable value method, allocate the joint costs of production to each product. 2. Explain why McKenzies Soap Sensations, Inc., always chooses to process each varietyof hand soap beyond the split-off point. 3. If demand for all products was the same, which product should McKenzies Soap Sensations, Inc., produce in the highest quantity?arrow_forwardVenezuela Oil Inc. transports crude oil to its refinery where it is processed into main products gasoline, kerosene, and diesel fuel, and by-product base oil. The base oil is sold at the split-off point for $1,000,000 of annual revenue, and the joint processing costs to get the crude oil to split-off are $10,000,000. Additional information includes: Required: Determine the allocation of joint costs using the net realizable value method, rounding the sales value percentages to the nearest tenth of a percent. (Hint: Reduce the amount of the joint costs to be allocated by the amount of the by-product revenue.)arrow_forward
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- Cheyenne, Inc. produces three products from a common input. The joint costs for a typical quarter follow: Direct materials $48,000 Direct labor 58,000 Overhead 63,000 The revenues from each product are as follows: Product A $74,000 Product B 79,000 Product C 29,000 Management is considering processing Product A beyond the split-off point, which would increase the sales value of Product A to $116,000. However, to process Product A further means that the company must rent some special equipment costing $17,500 per quarter. Additional materials and labor also needed would cost $12,650 per quarter. a. What is the gross profit currently being earned by the three products for one quarter? $Answer b. What is the effect on quarterly profits if the company decides to process Product A further? $Answerarrow_forwardMethods of joint-cost allocation, comprehensive. Kardash Cosmetics purchases flowers in bulk and processes them into perfume. From a certain mix of petals, the firm uses Process A to generate Seduction, its high-grade perfume, as well as a certain residue. The residue is then further treated, using Process B, to yield Romance, a medium-grade perfume. An ounce of residue typically yields an ounce of Romance. In July, the company used 25,000 pounds of petals. Costs involved in Process A, i.e., reducing the petals to Seduction and the residue, were: Direct Materials - $440,000; Direct Labor - $220,000; Overhead Costs - $110,000. The additional costs of producing Romance in Process B were: Direct Materials - $22,000; Direct Labor - $50,000; Overhead Costs - $40,000. During July, Process A yielded 7,000 ounces of Seduction and 49,000 ounces of residue. From this, 5,000 ounces of Seduction were packaged and sold for $109.50 an ounce. Also, 28,000 ounces of Romance were processed in Process B…arrow_forwardBlossom Inc. produces three separate products from a common process costing $100,300. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period. Sales Valueat Split-OffPoint Cost toProcessFurther Sales Valueafter FurtherProcessing Product 10 $59,400 $100,900 $190,100 Product 12 15,000 30,100 34,000 Product 14 55,600 149,400 215,900 Determine total net income if all products are sold at the split-off point. Net incomearrow_forward
- The joint process from which Ple'egrea, Inc. obtains both Nuts and Bolts has a total cost of $74,000 per batch. From each batch, 2,400 pounds of Nuts and 18,600 pounds of Bolts are obtained. These can be sold at the split-off point for $38 and $14 respectively. For product costing purposes Ple'egrea allocates joint costs using the relative sales value method. The amount of joint cost allocated to Nuts would be, to the nearest dollar:arrow_forwardAllison, Inc., produces two products, X and Y, in a single joint process. Last month the joint costs were $75,000 when 10,000 units of Product X and 15,000 units of Product Y were produced. Addi-tional processing costs were $15,000 for Product X and $10,000 for Product Y. Product X sells for $10, and Product Y sells for $5. The joint cost allocations to Products X and Y using the net realizable value method would be: Group of answer choices $42,500 $32,500 $30,000 $45,000 $42,857 $32,143 $45,000 $30,000 none of the above. Flag question: Question 2 Question 23 pts The joint cost allocations to Products X and Y using the physical units method would be: Group of answer choices $30,000 $45,000 $42,500 $32,500 $42,857 $32,143 $45,000 $30,000 none of the above. Flag question: Question 3 Question 33 pts The joint cost allocations to Products X and Y using the constant gross margin percentage method would be: Group of answer choices $42,143…arrow_forwardDallas Company produces joint products, TomL and JimmyJ, each of which incurs separable production costs after the splitoff point. Information concerning a batch produced at a $200,000 joint cost before splitoff follows:arrow_forward
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