Answer Happy

The South Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point. A, B, C, and D. Product C is fully processed by the splitoff point. Products A, B, and D can individually be further refined into Super A. Super B. and Super D. In the most recent month (December), the output at the splitoff point was as follows: (Click the icon to view the information.) Read the requirements Joint costs are the costs of a production process that yields multiple products simultaneously. The splitoff point is the juncture in a joint production process when two or more products become separately identifiable. Two approaches are used to allocate joint costs: Approach 1. Allocate joint costs using market-based data such as revenues. Three methods that use this approach follow: 1. Sales value at splitoff method 2. Net realizable value (NRV) method 3. Constant gross-margin percentage NRV method Approach 2. Allocate joint costs using physical measures, such as the weight (say, kilograms), quantity (say, physical units) or volume (say, cubic feet) of the joint products. In this problem, we will allocate the joint costs using three different methods - the sales value at splitoff, the physical-measures, and the NRV methods Requirement 1. Compute the gross-margin percentage for each product sold in December, using the different methods for allocating the $40,000 joint costs. a Sales Value at Splitoff. The sales value at splitoff method allocates joint costs to joint products on the basis of the relative total sales value at the splitoff point. This method will assume that none of the products are further processed into Super products. Begin by calculating the weighting of each product. Enter the sales value of total production at splitoff from the information given in the problem. Then calculate the weighting and the totals each of the columns. (Enter the weights to four decimal places.) Sales value of total production at splitoff Weighting А B с D Now allocate the joint costs using the weights you calculated above.
Sales value of total production at splitoft A $ Weighting Joint costs allocated B с D Compute the gross profit percentage using the sales value at splitoff method to allocate the joint costs. Remember you are calculating the gross margi.percentage for the month of December, so enter the applicable revenues and costs for each product as they were produced in December. Product is sold at splitoff, therefore it will not have separable costs associated with it. (Enter a "o for any cells with a zero balance. Round the percentages to two decimal places, XXXs. Use parentheses or a minus sign when entering negative amounts) Super A Super B с Super D Revenues Joint costs Separable costs Gross margin Gross margin percentage b. Allocate the joint costs using the physical-measure method. The physical measure method allocates joint costs to joint products on the basis of a comparable physical measure such as the relative weight quantity, or volume at the splito point in this problem we will use output gallons at the splitoff point. Enter the amounts in the table below and calculate the weighting of each product (Enter the weights to four decimal places.) Physical measure of total production Weighting B с D Now allocate the joint.costs using the weights you calculated above. Physical measure of Joint costs total production Weighting allocated 250,000 95.000 45,000 110,000 B C D Compute the gross margin percentage using the physical measures method to allocate the joint costs. Although we are using a different method to allocate the joint costs, our revenues and separable costs will remain the same. (Enter a "o for any cells
with a zero balance. Round the percentages to two decimal places, X.XX%. Use parentheses or a minus sign when entering negative amounts.) Super A Super B С Super D Revenues Joint costs Separable costs Gross margin Gross margin percentage c. Allocate the joint costs using the net realizable value method. The net realizable value (NRV) method allocates joint costs to joint products on the basis of relative NRV®. Remember, since Product C is not processed further, its NRV will be equal to it's sales value at splitoff. Enter the amounts in the table and calculate the weighting of each product. (Enter the weights to four decimal places.) Net realizable value Weighting Super A Super B с 60,000 Super D Now allocate the joint.costs to using the weights you calculated above. Net realizable Joint costs value Weighting allocated Super A $ Super B с 60,000 Super D Compute the gross margin percentage using the NRV method to allocate the joint costs. (Enter a "o" for any cells with a zero balance. Round the percentages to two decimal places, X.XX%. Use parentheses or a minus sign when entering negative amounts.) Super A Super B C Super D Revenues $ 60.000 $ Joint costs Separable costs Gross margin Gross margin percentage % Requirement 2. Could South have increased its December operating income by making different decisions about the further processing of products AB, or D? Recall the concepts of relevant revenues expected future revenues that differ among 0
alternative courses of action - and relevant costs - expected future costs that differ among alternative courses of action. These concepts can be applied to decisions on whether a joint product or main product should be sold at the splitoff point or processed further. To do so, we will look at the incremental revenues and incremental costs of processing products A, B, and D into the super products. Incremental revenues are the additional revenues eamed from processing the products further into the super products. Incremental costs are the additional costs incurred as a result of further processing. The decision to incur additional costs for further processing should be based on the incremental operating income attainable beyond the splitoff point. The $60.000 joint costs incurred before the splitoff point are irrelevant in deciding whether to process further. Why? Because the joint costs are the same whether the products are sold at the spitoff point or processed further. Using the formula below, show the effects on operating income from further processing each product. The incremental revenues can be calculated by finding the difference between revenues eamed from further processing less the sales value at spitoff of each product. (Enter negative effects with parentheses or a minus sign.) Effect on operating income Incremental revenues Incremental costs from further processing A B D If a product has a positive effect on operating income from further processing that means the incremental revenues are greater than the incremental costs. Therefore the company should continue to process this product further in order to maximize their operating income If a product has a negative effect on operating income the incremental costs of further processing are greater than the revenues earned from further processing. The company would improve their operating income by selling the product at the splitoff point. Looking at the analysis above, can South Oil Company increase its operating income by making a different decision about further processing products A, B and D? 1: More Info • Product A, 250,000 gallons • Product B, 95,000 gallons • Product C, 45,000 gallons • Product D, 110,000 gallons The joint costs of purchasing and processing the crude vegetable oil were $40,000. South had no beginning or ending inventories. Sales of product C in December were $60,000. Products A, B, and Dwere further refined and then sold. Data related to December are as follows: Separable Processing Costs to Make Super Products Revenues Super A $ 170,000 $ 250,000 Super B 60,000 100,000 Super D 5,000 25,000 South had the option of selling products A, B, and at the splitoff point. This alternative would have yielded the following revenues for the December production: • Product A. $40,000 . Product B. $30,000 • Product D. $70,000 .
1. Compute the gross-margin percentage for each product sold in December, using the following methods for allocating the $60,000 joint costs: a. Sales value at splitoff b. Physical-measure C. NRV 2. Could South have increased its December operating income by making different decisions about the further processing of products A, B, or D? Show the effect on operating income of any changes you recommend. 3: More Info Sales value at splitoff for product + Total sales value at splitoff of all products 4: More Info Joint costs * Weighting of product 5: Definition Gross margin percentage = (Gross margin + Sales) 6: More Info Gallons of product + Total gallons of products 7: More Info Joint costs Weighting of product 8: Definition Final sales value Separable costs - Net realizable value 9: Definition Net realizable value of product + Total net realizable values 10: More Info Joint costs * Weighting of product