j35 16.50 WORKING NOTES 1. Valuation of 1,200 kgs of Closing Work-in-process Material 100% complete (1,200 kgs x 152.585) 63.103 Fixed and variable overheads |(2,37,600 + 32,64,000 (13,800 units (14.200 - 600])] 600 units 21,809 84.912 (iii) Comment on the Method used by /KZ. Lid: JKL. Ltd has used the commonly used method of final sales value for allocating joint costs between proklucts) and K. Other methods used are: (a) Physical measure method, (b) Constant gross margin percentage method and (c) Net realisable value method. (iv) Whether Furter Processing of Product K to K should be undertaken or not Incremental sales revenue per kg from further processing 77 - 347.30) 529.70 Less Incremental variable cost per kg of further processing Incremental contribution per kg from further processing 13.20 Total incremental contribution (14,400 kgs x 13.20) 1.90,080 Less avoidable fixed cost (60% x 82,64,000) 1,58,400 Incremental profit 31.680.00 Break-even point - Avoidable fixed costs Incremental contribution per kg = 31,58,400/13.20 = 12,000 kgs The company should opt for further processing in case the output is expected to exceed 12,000 kgs per week. P.14.21 Pokemon Chocolates manufactures and distributes chocolate products. It purchases Cocoa beans and processes them into two intermediate products: Chocolate powder liquor base Milk-chocolate liquor base. These two intermediate products become separately identifiable at a single split off point. Every 500 pounds of cocoa beans yields 20 gallons of chocolate - powder liquor base and 30 gallons of milk- chocolate liquor base. The chocolate power liquor base is further processed into chocolate powder. The milk-chocolate liquor base is further processed into milk-chocolate. Every 30 gallons of milk-chocolate liquor based yields 340 pounds of milk chocolate. Production and sales data for October, current year are Cocoa beans processed 7,500 pounds Costs of processing Cocoa beans to split off point (including purchase of beans) = 87,12,500 Production Sales Selling price Chocolate powder 3,000 pounds 3,000 pounds per pound Milk chocolate 5,100 5.100 5237.50 per pound The October, separable costs of processing chocolate powder liquor into chocolate powder are 33,02,812.50. The October, 2004 separable costs of processing milk-chocolate liquor base into milk- chocolate are 36,23,437.50. Pokemon could have sold the chocolate powder liquor based for 3997.50 a gallon and the milk- chocolate liquor base for 1,235 a gallon. REQUIRED: (1) Calculate how the joint cost of 37,12,500 would be allocated between the chocolate powder and milk-chocolate liquor bases under the following methods: (a) Sales value at split off point (b) Physical measure gallons) () Estimated net realizable value, (NRV) and (d) Constant gross-margin percentage NRV. (it) What is the gross-margin percentage of the chocolate powder and milk-chocolate liquor bases un- der each of the methods in requirements (1)? (iii) Could Pokemon have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computation 190