Problem
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:
|
Product
|
Gallons
|
Further Processing
Cost per Gallon
|
Eventual Market
Price per Gallon
|
|
L-Ten
|
3,600
|
$0.50
|
$2.00
|
|
Triol
|
4,000
|
1.00
|
5.00
|
|
Pioze
|
2,500
|
1.50
|
6.00
|
Task
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
|
$fill in the blank 1
|
|
Total Costs
|
$fill in the blank 2
|
|
Total Gross Profit
|
$fill in the blank 3
|
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
|
$fill in the blank 4
|
|
Triol
|
fill in the blank 5
|
|
Pioze
|
fill in the blank 6
|
|
Total
|
$fill in the blank 7
|
(Note: The joint cost allocation does not equal due to rounding.)
3. What if it cost $2.00 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
|
$fill in the blank 8
|
|
Triol
|
fill in the blank 9
|
|
Pioze
|
fill in the blank 10
|
|
Total
|
$fill in the blank 11
|