Question

Chemical Corporation produces various alcohol products in a joint production process. For the month of January, $120,000 of materials, labor, and overhead were added to produce the three main products: Q1, Q2, and Q3. The sale values were available right after the split-off point. The following diagram shows the process.

			Q1 Sales value $300,000
Joint costs $120,000			Q2 Sales value $100,000
			Q3 Sales value $20,000

Required:

Allocate the joint costs to the products using the net realizable value method.

Calculate the gross margin for each product. (You can show 2 different schedules or combine it into one chart. I have inserted one chart for you.)

Product
Q1
Q2
Q3
Total

Answer 1

Answer:

  Allocation of Joint cost using the net realizable value method

Joint Product	Net Realizable value	Working	Share in Joint Cost
Q-1	$300,000	($300,000 / $420,000) x $120,000	$85,714
Q-2	$100,000	($100,000 / $420,000) x $120,000	$28,571
Q-3	$20,000	($20,000 / $420,000) x $120,000	$5715
Total	$420,000		$120,000

Calculation of Gross margin of each product:

Particulars	Gross Margin
Q-1 ($300,000 x 71.4285%)	$214,286
Q-2 ($100,000 x 71.4285%)	$71,429
Q-3 ($20,000 x 71.4285%)	$14,285
Total	$300,000

Notes:

Gross Margin Ratio = (Total sales of each product - Total Cost ) / sales

= ($420,000 -$120,000 ) / $420,000

= 71.4285%