16-37

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 wre $137,000 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 the unpackaged Seduction for $56 an ounce

and the residue from Process A for $24 an ounce.

1. What is the joint cost of the firm to be allocated to Seduction and Romance?

2. Under the physical measure method, how would the joint cost be allocated

to Seduction and Romance?

3. Under the sales value at splitoff method, what portion of the joint costs would

be allocated to Seduction and Romance, respectively?

4. What is the estimated net realized value per ounce of Seduction and Romance?

5. Under the net realized value method, what potion of the joint costs would be allocated to

Seductiona and Romance, respectively?

6. What is the gross margin percentage for the firm as a whole?

7. Allocate the joint costs to Seduction and Romance under the constant gross margin

percentage NRV method.

8. If you were the manager at Kardash cosmetics, would you continue to process the

petal residue into the Romance perfume? Explain your answer.

16-37 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 wre $137,000 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 the unpackaged Seduction for $56 an ounce and the residue from Process A for $24 an ounce. 1. What is the joint cost of the firm to be allocated to Seduction and Romance? 2. Under the physical measure method, how would the joint cost be allocated to Seduction and Romance? 3. Under the sales value at splitoff method, what portion of the joint costs would be allocated to Seduction and Romance, respectively? 4. What is the estimated net realized value per ounce of Seduction and Romance? 5. Under the net realized value method, what potion of the joint costs would be allocated to Seductiona and Romance, respectively? 6. What is the gross margin percentage for the firm as a whole? 7. Allocate the joint costs to Seduction and Romance under the constant gross margin percentage NRV method. 8. If you were the manager at Kardash cosmetics, would you continue to process the petal residue into the Romance perfume? Explain your