Allocating Joint Costs Using the Constant Gross Margin Method

A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $13,000. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:

Product	Gallons	Further Processing Cost per Gallon	Eventual Market Price per Gallon
L-Ten	3,500	$0.50	$2.00
Triol	4,000	1.00	5.00
Pioze	2,500	1.50	6.00

1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.

total Revenue
Total Costs
Total Gross Profit

2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

Product	Allocation
L-Ten
Triol
Pioze
Total

(Note: The joint cost allocation does not equal due to rounding.)

3. What if it cost $2.00 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

Product	Allocation
L-Ten
Triol
Pioze
Total

(Note: The joint cost allocation does not equal due to rounding.)