Protomastoras SA produces three products: Alpha, Beta and Gamma. Alpha and Gamma are joint products and Beta is a by-product of Alpha. No joint costs are to be allocated to the by-product. The production processes for a given year are as follows:
a. In Department 1, 110 000 kg of direct material Rho are processed at a total cost of €120 000. After processing in Department 1, 60% of the units are transferred to Department 2 and 40% of the units (now Gamma) are transferred to Department 3.
b. In Department 2, the material is further processed at a total additional cost of €38 000. Seventy per cent of the units (now Alpha) are transferred to Department 4 and 30% emerge as Beta, the by-product, to be sold at €1.20 per kg. Separable marketing costs for Beta are €8100.
c. In Department 4, Alpha is processed at a total additional cost of €23 660. After this processing, Alpha is ready for sale at €5 per kg.
d. In Department 3, Gamma is processed at a total additional cost of €165 000. In this department, a normal loss of units of Gamma occurs, which equals 10% of the good output of Gamma. The remaining good output of Gamma is then sold for €12 per kg.
Required
1. Prepare a schedule showing the allocation of the €120000 joint costs between Alpha and Gamma using the estimated NRV method. The estimated NRV of Beta should be treated as an addition to the sales value of Alpha.
2. Independent of your answer to requirement 1, assume that €102 000 of total joint costs were appropriately allocated to Alpha. Assume also that there were 48 000 kg of Alpha and 20 000 kg of Beta available to sell. Prepare an income statement through gross margin for Alpha using the following facts:
a. During the year, sales of Alpha were 80% of the kilograms available for sale. There was no opening stock.
b. The estimated NRV of Beta available for sale is to be deducted from the cost of producing Alpha. The closing stock of Alpha is to be based on the net costs of production.
c. All other cost and selling price data are listed in a-d.