Problem 16-29 from cost accounting a managerial emphasis

602 CHAPTER 16 COST ALLOCATION: JONT PRODUCTS AND BYPRODUCTS Production and sales data for August 2012 are as follows (assume no beginning inventory): Cocoa beans processed, 15,000 pounds Costs of processing cocoa beans to splitoff point (including purchase of beans), $30,000 Production Sales Separable Processing Costs Selling Price Chocolate powder Milk chocolate 6,000 pounds 6,000 pounds $4 per pound 10,200 pounds $5 per pound 10,200 pounds $12,750 $26,250 Required Required Chocolate Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2012, Chocolate Factory could have sold the chocolate-powder liquor base for $21 a gallon and the milk-chocolate liquor base for $26 a gallon. 1. Calculate how the joint costs of $30,000 would be allocated between chocolate powder and chocolate under the following methods: a. Sales value at splitoff b. Physical-measure (gallons) c. NRV d. Constant gross-margin percentage NRV 2. What are the gross-margin percentages of chocolate powder and milk chocolate under each Of the methods in requirement 1? 3. Could Chocolate Factory have increased its operating income by a change in its dec ision to process both of its intermediate products? Show your computations. lssr, pur- Joint-cost allocation, process further or sell. (CMA, adapted) Sonimad Sawmill, inc.r chases logs from independenttimber contractors and processes the logs into three types of lumbel Pt0dUCis: Studs for residential buildings (walls, ceilings) Decorative pieces (fireplace mantels, beams for cathedral ceilings) Posts used as support braces (mine support braces, braces for exterior fences on ranch prope. -ties) These products are the result of a joint sawmill process that involves removal of bark from the logs, c utting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual proudUCts from the logs. The joint process results in the following costs of products for a typical month: Direct materials (rough timber logs) Debarking (labor and overhead) Sizing (labor and overhead) Product cutting (labor and overhead) Total joint costs $ 500,000 50,000 200,000 250,000 Product yields and average sales values on a per-unit basis from the joint process are as follows: Product Studs Decorative pieces Posts Fully Processed Selling Price Monthly Output of Materials at Splitoff Point 75,000 units 5,000 units 20,000 units 100 20 The studs are sold as rough-cut lumber after emerging from the sawmill operation without further process- ing by SSI. Also, the posts require no further processing beyond the splitoff point. The decorative pieces must be planed and further sized after emerging from the sawmill. This additional processing costs $100,000 per month and normally results in a loss of 10% of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative pieces in which the selling price averages $60 per unit. 1. Based on the information given for Sonimad Sawmill, allocate the joint processing costs of to the three products using: a. Sates value at splitoff method b. Physical-measure method (volume in units) c. NRV method 2. Prepare an analysis for Sonimad Sawmill that compares processing the decorative pieces further, as it currently does, with selling them as a rough-cut product immediately at splitoff.