Question:
(Joint cost allocation; by-product; income determination) Stephenville Bank & Trust offers two primary financial services: commercial checking and credit cards. The bank also generates some revenue from selling identity fraud insurance as a by-product of its two main services. The monthly joint cost for conducting the two primary services is $800,000 and includes expenses for facilities, legal sup-port, equipment, record keeping, and administration. The joint cost is allocated on the basis of total revenues generated from each primary service.
The following table presents the results of operations and revenues for June:
|
Service
|
Number of Accounts
|
Total Revenues
|
|
Commercial checking
|
12,000
|
$1,914,000
|
|
Credit cards
|
28,000
|
1,386,000
|
|
Identity theft insurance
|
10,000
|
80,000
|
To account for revenues from the identity theft insurance, management reduces Cost of Services Rendered for primary services. The commissions are accounted for on a realized value basis as the policies are received.
For June, separate costs for commercial checking accounts and credit cards were $850,000 and $380,000, respectively.
a. Allocate the joint cost.
b. Determine the income for each primary service and the company's overall gross margin for June.