Question

Ochre processes tomatoes into tomato sauce, tomato paste, and tomato puree. As part of the cost...

Ochre processes tomatoes into tomato sauce, tomato paste, and tomato puree. As part of the cost planning and cost control of operations and activities, the company is currently reviewing the gross-margin percentage of each of its products, using the estimated net realisable value (NRV) method for allocating joint costs. The company processes tomatoes in Department #1, out of which come three products: tomato sauce, tomato paste, and tomato puree. Processing 750,000 kg in Department #1 results in 50,000 kg of tomato sauce, 300,000 kg of tomato paste and 100,000 kg of tomato puree, and the costs in Department #1 are $500,000 in total.

Tomato paste is sold without further processing. Tomato sauce is processed further through Department #2 and the costs are $50,000. Tomato puree is considered a by-product and is processed further through Department #3 and the costs are $50,000. Tomato sauce sells for $4 per kg. Tomato paste sells for $2 per kg. Tomato puree sells for $3 per kg.

a. Calculate the gross-margin percentage of each product using unit costs per kilogram for tomato sauce, tomato paste, and tomato puree, treating tomato puree as a by-product. Deduct the estimated NRV of the by-product produced from the joint cost of tomato sauce and tomato paste.

b. Calculate the gross-margin percentage of each product using unit costs per kilogram for tomato sauce, tomato paste, and tomato puree, treating all three as joint products.

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