Comparison of alternative joint cost allocation methods, further-processing decision. The Chocolate Factory manufactures and distributes chocolate products. It purchases cocoa beans and processes them into two intermediate products: chocolate powder liquor base and milk chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 1,500 kilograms of cocoa beans yields 60 litres of chocolate powder liquor base and 90 litres of milk chocolate liquor base. The chocolate powder liquor base is further processed into chocolate powder. Every 60 litres of chocolate powder liquor base yield 600 kilograms of chocolate powder. The milk chocolate, liquor base is further processed into milk chocolate. Every 90 litres of milk chocolate liquor base yield 1,020 kilograms of milk chocolate. Production and sales data for August 2009 are (assume no beginning inventory):

Chocolate Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2009, Chocolate Factory could have sold the chocolate powder liquor base for $21 a litre and the milk chocolate liquor base for $26 a litre.
REQUIRED 1. Calculate how the joint costs of $30,000 would be allocated between chocolate powder and milk chocolate under the following methods:

a. Sales value at splitoff

b. Physical-measure (litres)

c. NRV

d. Constant gross margin percentage NRV 2. What are the gross margin percentages of chocolate powder and milk chocolate under each of the methods in requirement 1?
3. Could Chocolate Factory have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computations.LO1

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Cocoa beans processed, 15,000 kilograms Costs of processing cocoa beans to splitoff point (including purchase of beans), $30,000 Separable Processing Production Sales Selling Price Costs Chocolate powder 6,000 kg 6,000 kg $4 per kg $12,750 Milk chocolate 10,200 kg 10,200 kg $5 per kg $26,250