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Joint cost allocation
McKenzie’s 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 that costs $30,000 per batch. Each batch produces 14,800 bottles of morning glory hand soap, 12,000 bottles of snowflake sparkle hand soap, and 10,000 bottles of sea breeze hand soap at the split-off point. Each product is processed further after the split-off point, but the market value of a bottle of any of the flavors at this point is estimated to be $1.25 per bottle. The additional processing costs of morning glory, snowflake sparkle, and sea breeze hand soap are 10.50, $0.55, and $0.60 per bottle, respectively. Morning glory, snowflake sparkle, and sea breeze hand soap are then sold for $2.00, $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 McKenzie’s Soap Sensations, Inc., always chooses to process each variety of hand soap beyond the split-off point.
- 3. If demand for all products was the same, which product should McKenzie’s Soap Sensations, Inc., produce in the highest quantity?
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Chapter 19 Solutions
Financial And Managerial Accounting
- Joint cost allocation Lovely Lotion Inc. produces three different lotions: hand, body, and foot. The lotions are produced jointly in a mixing process that costs a total of 250 per batch. At the split-off point, one batchproduces 80, 40, and 25 bottles of hand, body, and foot lotion, respectively. After the split-off point,hand lotion is sold immediately for 2.50 per bottle. Body lotion is processed further at an additional cost of 0.25 per bottle and then sold for 5.75 per bottle. Foot lotion is processed further atan additional cost of 0.85 per bottle and then sold for 4.00 per bottle. Assume that body and footlotion could be sold at the split-off point for 3.00 and 3.20 per bottle, respectively. Instructions 1. Using the market value at split-off method, allocate the joint costs of production to each product. 2. Based on the information provided and your answer to part (1), should Lovely LotionInc. continue processing body and foot lotion after the split-off point? 3. Allocate the joint costs of production to each product using the net realizable value method.arrow_forwardJoint cost allocation net realizable value method Natures Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logsproduces 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards ofwood pulp. The joint production process costs a total of 32,000 per batch. After the split-off point,wood chips are immediately sold for 25 per cubic yard while wood pulp and mulch are processedfurther. The market value of the wood pulp and mulch at the split-off point is estimated to be 22and 24 per cubic yard, respectively. The additional production process of the wood pulp costs 5per cubic yard, after which it is sold for 30 per cubic yard. The additional production process ofthe mulch costs 4 per cubic yard, after which it is sold for 32 per cubic yard. Allocate the jointcosts of production to each product using the net realizable value method.arrow_forwardProduct Mix Decision, Single Constraint Norton Company produces two products (Juno and Hera) that use the same material input. Juno uses two pounds of the material for every unit produced, and Hera uses five pounds. Currently, Norton has 16,000 pounds of the material in inventory. All of the material is imported. For the coming year, Norton plans to import an additional 8,000 pounds to produce 2,000 units of Juno and 4,000 units of Hera. The unit contribution margin is 30 for Juno and 60 for Hera. Also, assume that Nortons marketing department estimates that the company can sell a maximum of 2,000 units of Juno and 4,000 units of Hera. Norton has received word that the source of the material has been shut down by embargo. Consequently, the company will not be able to import the 8,000 pounds it planned to use in the coming years production. There is no other source of the material. Required: 1. Compute the total contribution margin that the company would earn if it could manufacture 2,000 units of Juno and 4,000 units of Hera. 2. Determine the optimal usage of the companys inventory of 16,000 pounds of the material. Compute the total contribution margin for the product mix that you recommend.arrow_forward
- Board-It, Inc., produces the following types of 2 4 10 wood boards: washed, stained, and pressure treated. These products are produced jointly until they are cut. One batch produces 45 washed boards, 35 stained boards, and 20 pressure treated boards. The joint production process costs a total of 710 per batch. Using the physical units method, allocate the joint production cost to each product.arrow_forwardBasic Cost Flows Gardner Company produces 18-ounce boxes of a wheat cereal in three departments: mixing, cooking, and packaging. During August, Gardner produced 250,000 boxes with the following costs: Required: 1. Calculate the costs transferred out of each department. 2. Prepare journal entries that reflect these cost transfers.arrow_forwardBasic Cost Flows Hardy Company produces 18-ounce boxes of a rolled oat cereal in three departments: mixing, cooking, and packaging. During September, Hardy produced 200,000 boxes with the following costs: Required: 1. Calculate the costs transferred out of each department. 2. Prepare journal entries that reflect these cost transfers.arrow_forward
- 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_forwardBreegle Company produces three products (B-40, J-60, and H-102) from a single process. Breegle uses the physical volume method to allocate joint costs of 22,500 per batch to theproducts. Based on the following information, which product(s) should Breegle continue toprocess after the split-off point in order to maximize profit? a. B-40 only b. J-60 only c. H-102 only d. B-40 and H-102 onlyarrow_forwardMan OFort Inc. produces two different styles of door handles, standard and curved. The door handles go through a joint production molding process costing 29,000 per batch and producing 2,000 standard door handles and 1,000 curved door handles at the split-off point. Both door handles undergo additional production processes after the split-off point, but could be sold at that point: the standard style for 4 per door handle and the curved style for 2 per door handle. Determine the amount of joint production costs allocated to each style of door handle using the market value at split-off method.arrow_forward
- Bountiful Manufacturing produces two types of bike frames (Frame X and Frame Y). Frame X passes through four processes: cutting, welding, polishing, and painting. Frame Y uses three of the same processes: cutting, welding, and painting. Each of the four processes employs 10 workers who work eight hours each day. Frame X sells for 40 per unit, and Frame Y sells for 55 per unit. Materials is the only unit-level variable expense. The materials cost for Frame X is 20 per unit, and the materials cost for Frame Y is 25 per unit. Bountifuls accounting system has provided the following additional information about its operations and products: Bountifuls management has determined that any production interruptions can be corrected within two days. Required: 1. Assuming that Bountiful can meet daily market demand, compute the potential daily profit. Now, compute the minutes needed for each process to meet the daily market demand. Can Bountiful meet daily market demand? If not, where is the bottleneck? Can you derive an optimal mix without using a graphical solution? If so, explain how. 2. Identify the objective function and the constraints. Then, graph the constraints facing Bountiful. Determine the optimal mix and the maximum daily contribution margin (throughput). 3. Explain how a drum-buffer-rope system would work for Bountiful. 4. Suppose that the Engineering Department has proposed a process design change that will increase the polishing time for Frame X from 15 to 23 minutes per unit and decrease the welding time from 15 minutes to 10 minutes per unit (for Frame X). The cost of process redesign would be 10,000. Evaluate this proposed change. What step in the TOC process does this proposal represent?arrow_forwardJoint cost allocation-market value at split-off method Toil Oil processes crude oil to jointly produce gasoline, diesel, and kerosene. One batch produces 3,415 gallons of gasoline, 2,732 gallons of diesel, and 1,366 gallons of kerosene at a joint cost of 112,000. After the split-off point, all products are processed further, but the estimated market price for each product at the split-off point is as follows: Using the market value at split-off method, allocate the 12,000 joint cost of production to each product.arrow_forwardCaseys Kitchens makes two types of food smokers: Gas and Electric. The company expects to manufacture 20,000 units of Gas smokers, which have a per-unit direct material cost of $15 and a per-unit direct labor cost of $25. k also expects to manufacture 50,000 units of Electric smokers, which have a per-unit material cost of $20 and a per-unit direct labor cost of $45. Historically, it has used the traditional allocation method and applied overhead at a rate of $125 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is as follows: The cost driver for each cost pool and its expected activity is as follows: A. What is the per-unit cost for each product under the traditional allocation method? B. What is the per-unit cost for each product under ABC costing? C. Compared to ABC costing, was each products overhead under- or over applied? D. How much was overhead under- or over applied for each product?arrow_forward
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