Clarion Company, a new firm, manufactures two products, J and K, in a common process. The joint costs amount to $80,000 per batch of finished goods. Each batch results in 20,000 liters of output, of which 80% are J and 20% are K.

The two products are processed beyond the split-off point, with Clarion incurring the following separable costs: J, $2 per liter; K, $5 per liter. After the additional processing, the selling price of J is $12 per liter, and the selling price of K is $15 per liter.

A. Determine the proper allocation of joint costs if the company uses the net-realizable value method.

B. Assume that Clarion sold all of its production of K during the current accounting period. Compute Ks sales revenue, cost of goods sold, and gross margin.

C. Repeat the analysis in 4.1 and 4.2 assuming that Clarion uses the physical units method to allocate joint costs.

D. Repeat the analysis in 4.1 and 4.2 assuming that Clarion uses the relative sales value method to allocate joint costs.

E. Is the firms cost of goods sold influenced by the choice of a joint-cost allocation method? Use your responses to 4.2 through 4.4 to support your answer.

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