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Johnston Adhesives Company makes three widely used industrial adhesives: A101, A204, and B216. Sales and production information for each of the three adhesives are shown

Johnston Adhesives Company makes three widely used industrial adhesives: A101, A204, and B216. Sales and production information for each of the three adhesives are shown in the following table. Most of Johnstons customers ask for a special blend of the three products, which improves heat-resistance. The additional separable processing requires additional time and materials, and the price is increased accordingly, as shown in the table. Assume that Johnston produces only for specific customer orders, so there is no beginning or ending inventory. Assume also that all of Johnstons customers requested the heat-resistant version of the products so that all production required additional separable processing. Total joint cost for the three products is $3,293,000.

A101 A204 B216
Gallons sold 178,000 147,000 126,000
Final sales price per gallon $ 14 $ 11 $ 7
Price at split-off 11 6 5
Separable processing cost $ 559,000 $ 150,000 $ 514,000

Required:

1. Calculate the unit product cost and total gross margin for each of the three product lines using the following methods: (a) physical measure method, (b) sales value at split-off method, (c) the net realizable value method, and (d) the constant gross margin percentage method. (Round intermediate calculations and cost per unit answers to 4 decimal places. Round your final answers to whole dollar amounts. Negative amounts should be indicated with a minus sign.)

2. Which of the four methods do you think would be preferred in this case?

multiple choice

  • Physical measure method

  • Sales value at split-off method

  • Net realizable value method

  • Constant gross margin method

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