Problem:
Joint cost allocation, ending work in process inventories. Tastee Freez, Inc., produces two specialty ice cream mix flavors for soft serve ice cream machines. The two flavors, Extreme Chocolate and Very Strawberry, both start with a vanilla base. The vanilla base can be sold for $2 per gallon. The company did not have any beginning inventories but produced 8,000 gallons of the vanilla base during the most recent month at a cost of $5,200. The 8,000 gallons of base was used to begin production of 5,000 gallons of Extreme Chocolate and 3,000 gallons of Very Strawberry.
At the end of the month, the company had some of its ice cream mix still in process. There were
1,200 gallons of Extreme Chocolate 30% complete and 200 gallons of Very Strawberry 80% complete. Processing costs during the month for Extreme Chocolate and Very Strawberry were $9,152 and $8,880, respectively. The selling prices for Extreme Chocolate and Very Strawberry are $4 and $5, respectively.
Required
1. Allocate the joint costs to Extreme Chocolate and Very Strawberry under the following methods:
a. Sales value at splitoff
b. Net realizable value
c. Constant gross margin percentage NRV
2. Compute the gross margin percentages for Extreme Chocolate and Very Strawberry under each of the methods in requirement 1.