14 May WHAT PORTION OF THE JOINT COSTS WOULD BE ALLOCATED TO SEDUCTION AND ROMANCE, RESPECTIVELY?
Methods of joint-cost allocation, comprehensive. Kardash Cosmetics purchases flowers in bulk and processes them into perfume. From a certain mix of petals, the firm uses Process A to generate Seduction, its high-grade perfume, as well as a certain residue. The residue is then further treated, using Process B, to yield Romance, a medium-grade perfume. An ounce of residue typically yields an ounce of Romance.
In July, the company used 25,000 pounds of petals. Costs involved in Process A, i.e., reducing the petals to Seduction and the residue, were:
Direct Materials − $440,000; Direct Labor − $220,000; Overhead Costs − $110,000.
The additional costs of producing Romance in Process B were:
Direct Materials − $22,000; Direct Labor − $50,000; Overhead Costs − $40,000.
During July, Process A yielded 7,000 ounces of Seduction and 49,000 ounces of residue. From this, 5,000 ounces of Seduction were packaged and sold for $109.50 an ounce. Also, 28,000 ounces of Romance were processed in Process B and then packaged and sold for $31.50 an ounce. The other 21,000 ounces remained as residue. Packaging costs incurred were $137,500 for Seduction and $196,000 for Romance. The firm has no beginning inventory on July 1.
If it so desired, the firm could have sold unpackaged Seduction for $56 an ounce and the residue from Process A for $24 an ounce.
(Part 5) Question: Under the net realizable value method, What portion of the joint costs would be allocated to Seduction and Romance, respectively?
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Methods of joint-cost allocation, ending inventory. Tivoli Labs produces a drug used for the treatment of hypertension. The drug is produced in batches. Chemicals costing $60,000 are mixed and heated, creating a reaction; a unique separation process then extracts the drug from the mixture. A batch yields a total of 2,500 gallons of the chemicals. The first 2,000 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians.
The costs of mixing, heating, and extracting the drug amount to $90,000 per batch. The output sold for human use is pasteurized at a total cost of $120,000 and is sold for $585 per gallon. The product sold to veterinarians is irradiated at a cost of $10 per gallon and is sold for $410 per gallon.
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In March, Tivoli, which had no opening inventory, processed one batch of chemicals. It sold 1,700 gallons of product for human use and 300 gallons of the veterinarian product. Tivoli uses the net realizable value method for allocating joint production costs.
(Part 3) Question: If Tivoli were to use the constant gross-margin percentage NRV method instead, how would it allocate its joint costs?
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