Problem
The Keeva Company operates a simple chemical process to convert a single material into three separate? items, referred to here as? X, Y, and Z. All three end products are separated simultaneously at a single splitoff point. Products X and Y are ready for sale immediately upon splitoff without further processing or any other additional costs. Product? Z, however, is processed further before being sold. There is no available market price for Z at the splitoff point. The selling prices quoted here are expected to remain the same in the coming year. During 2014?, the selling prices of the items and the total amounts sold? were:
X - 60 tons sold for $1,500 per ton
Y - 260 tons sold for $1,000 per ton
Z - 470 tons sold for $700 per ton
The total joint manufacturing costs for the year were $328,000. Keeva spent an additional $200,000 to finish product Z. There were no beginning inventories of? X, Y, or Z. At the end of the? year, the following inventories of completed units were on? hand: X, 240 tons; Y, 140 tons; Z, 30 tons. There was no beginning or ending work in process.
1. Compute the cost of inventories of X, Y, and Z for balance sheet purposes and the cost of goods sold for income statement purposes as of December 31, 2014, using the following joint cost allocation methods:
a. NRV method
b. Constant gross-margin percentage NRV method.
2. Compare the gross-margin percentages for X, Y, and Z using the two methods given in requirement 1.