Question

Waterloo company manufactures four joint products which have a manufacturing cost of $120,000 at the split-off point. Data pertaining to these products are as follows:

Product	Final market value per unit	Processing cost after split-off	Units produced and sold
A	$.50	$2,000	20,000
B	5.00	10,000	15,000
C	4.50	10,000	10,000
D	8.00	28,000	15,000
Total			60,000

Required: Allocate the joint costs under each of the following methods:

1. Final sales value Method (4)
2. Estimated Net Realisable Value method (NRV); and (4)
3. Constant gross margin percentage NRV method. (5+5=10)

Answer 1

Answer:-

Allocation of Joint Costs of $120,000 based on sales value

Product	Final market value /unit (A)	Units produced and sold (B)	Total Sales value             (C )=(A)x(B)	Weights (D)= (C)/250000*100	Allocation of joint costs(D )*$120,000
A	$0.50	20,000	10,000	4.00%	4,800
B	$5	15,000	75,000	30.00%	36,000
C	$4.50	10,000	45,000	18.00%	21,600
D	$8	15,000	120,000	48.00%	57,600
Total			250,000	100.00%	120,000

Allocation of Joint Costs of $120,000 based on Estimated Net Realisable Value

Product	Final market value /unit (A)	Units produced and sold (B)	Total Sales value             (C )=(A)x(B)	Further processing costs(D)	NRV at split off(E)=(C )-(D)	Weights(F)= (E)/200,000	Allocation of joint costs=(F)*120,000
A	$0.50	20,000	10,000	2,000	8,000	4.00%	4,800
B	$5	15,000	75,000	10,000	65,000	32.50%	39,000
C	$4.50	10,000	45,000	10,000	35,000	17.50%	21,000
D	$8	15,000	120,000	28,000	92,000	46.00%	55,200
Total			250,000	50,000	200,000	100.00%	120,000

Calculation of Gross Margin:-

Gross Sales 250,000...(A+B+C+D)

Less:-Total Costs(120,000+50,000) 170,000 ...(Joint Costs + Processing costs after split off)

Gross Margin 80,000

Gross Margin as percentage of sales= (80,000/250,000)*100=32%

Cost as a percentage of Sales=100%-32%=68%

Allocation of Joint Costs of $120,000 based on Constant Gross Margin Percentage Net Realisable Value Method:-

Product	Final market value /unit (A)	Units produced and sold (B)	Total Sales value             (C )=(A)x(B)	Further processing costs(D)	Total costs=68% of (C )	Allocated Joint Costs (F)=(E)-(D)
A	$0.50	20,000	10,000	$ 2,000	6,800	4,800
B	$5	15,000	75,000	10,000	51,000	41,000
C	$4.50	10,000	45,000	10,000	30,600	20,600
D	$8	15,000	120,000	28,000	81,600	53,600
Total			250,000	50,000		120,000