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A.
which is focused on extracting another material. For example palladium is produced as a by-product of platinum mining in South
Africa).
3.
B.
Product A
1,800
1,680
120
Gross Margin %:
Product A = 120 / 1,800 = 7%
Product B = 480 / 1,200 = 40%
1
Product B
1,200
720
480
Total _
3,000
2,400
600
Product A
1,800
1,440
360
Product B
1,200
960
240
Total _
3,000
2,400
600
Gross Margin %:
Product A = 360 / 1,800 = 20%
Product B = 240 / 1,200 = 20%
Total = 600 / 3,000 = 20%
b.
Cost Allocation:
Product A = 2,925 / (2,925 + 975) x 2,400 = 1,800
Product B = 975 / 3,900 x 2,400
=
600
2,400
Cost of Goods Sold:
Product A = 1,800 + 675 = 2,475
Product B = 600 + 425 = 1,025
Income Statement:
Product A Product B
Sales
3,600
1,400
Cost of Goods Sold
2,475
1,025
Gross Margin
1,125
375
Total _
5,000
3,500
1,500
Gross Margin %:
Product A = 1,125 / 3,600 = 31%
Product B = 375 / 1,400 = 27%
Total = 1,500 / 5,000 = 30%
2)
Product A
3,600
2,520
1,080
Product B
1,400
980
420
Total _
5,000
3,500
1,500
Gross Margin %:
Product A = 1,080 / 3,600 = 30%
Product B = 420 / 1,400 = 30%
Total = 1,500 / 5,000 = 30%
C.
Special Considerations
1. Decision Making
a. Short-run Decision--at the split-off point the decision to sell a
joint product at the split-off point or to process the joint
product beyond the split-off point before selling it is determined
by comparing the additional revenue generated from processing the
joint product beyond the split-off point with the additional costs
from processing the joint product beyond the split-off point
1) Illustrations
a) A corporation incurred joint costs of $4,600 in
manufacturing Product A and Product B to the split-off
point; Product A can be sold at the split-off point for
$3,500 or for $5,000 after incurring additional processing
costs of $1,200; Product B can be sold at the split-off
point for $2,500 or for $3,000 after incurring additional
processing costs of $700
Additional Profit From Processing:
Product A = (5,000 3,500) 1,200 = 300
Product A should be processed beyond the split-
off point.
Product B = (3,000 2,500) 700 = (200)
Product B should not be processed beyond the
split-off point.
Profit at Split-off Point = 3,500 + 2,500 4,600 =
1,400
Profit From Processing Product A = 5,000 + 2,500
(4,600 + 1,200) =
1,700
b)
b.
2.
manufacturing Product A, Product B, and Product C to the splitoff point; Product C is considered a by-product; joints costs
are allocated to the joint products using their relative
weights; Product A weighed 2,000 pounds and was processed
beyond the split-off point at a cost of $4,000; Product B
weighed 3,000 pounds and was sold at the split-off point;
Product C weighed 500 pounds and had a estimated net realizable
value of $1,000; 1,400 pounds of Product A were sold; 2,700
pounds of Product B were sold; 400 pounds of Product C were
sold
Cost Allocation:
Product A = 2,000 / (2,000 + 3,000) x 16,000 = 6,400
Product B = 3,000 / 5,000 x 16,000
= 9,600
16,000
Cost of Goods
Product A
Product B
Product C
b.
Sold:
= 1,400 / 2,000 x (6,400 + 4,000) =
7,280
= 2,700 / 3,000 x 9,600
=
8,640
= 400 / 500 x 1,000
= (
800)
15,120
Net Realizable Value--the estimated realizable value of the byproduct manufactured is treated as a reduction of the joint costs
1) Illustration--a corporation incurred joint costs of $16,000 in
manufacturing Product A, Product B, and Product C to the splitoff point; Product C is considered a by-product; joints costs
are allocated to the joint products using their relative
weights; Product A weighed 2,000 pounds and was processed
beyond the split-off point at a cost of $4,000; Product B
weighed 3,000 pounds and was sold at the split-off point;
Product C weighed 500 pounds and had a estimated net realizable
value of $1,000; 1,400 pounds of Product A were sold; 2,700
pounds of Product B were sold; 400 pounds of Product C were
sold
Cost Allocation:
Product A = 2,000 / (2,000 + 3,000) x
(16,000 1,000)
= 6,000
Product B = 3,000 / 5,000 x 15,000
= 9,000
15,000
Cost of Goods Sold:
Product A = 1,400 / 2,000 x (6,000 + 4,000) =
Product B = 2,700 / 3,000 x 9,000
=
7,000
8,100
15,100