Smart Corporation produces two joint products DX and EX. Additionally, FX is a by-product of DX. The production processes for a given year are as follows:

In the first department Cutting 117,000 pounds of direct materials are processed at a total cost of $150,000. After processing in the Cutting department, 62,000 pounds are transferred to the Mixing department, and 55,000 pounds (now EX) are transferred to the Fabricating department.

In the Mixing department, the material is further processed at a total additional cost of $18,000. Of the pounds available, 50,000 pounds (now DX) are transferred to the Finishing department, and the remaining pounds emerge as FX, the by-product to be sold at $2 per pound. Marketing expenses of the disposal of FX are $4,000. The net realizable value of the by-product is treated as an addition to the sales value of DX.

In the Finishing department, DX is processed at a total additional cost of $8,400. After this processing, DX is ready for sale at $5 per pound.

In the Fabricating department, EX is processed at a total additional cost of $123,600. In this department, a normal loss of units of EX occurs, which equals 10% of the good output of EX. The remaining good output of EX is then sold for $6 per pound.

Required:

1. Allocate joint costs using the net realizable value method (10 marks).
2. Independent of your answer to requirement a above, assume that $100,000 of total joint costs were appropriately allocated to DX. Prepare a statement of gross margin for DX using the following information:

1. During the year, sales of DX were 70% of the pounds available for sale. There were no beginning inventories of either DX or FX.
2. The by-product accounting method used by Smart Corporation treats the net realizable value of a by-product as a deduction from the cost of the major product produced.

3. Other data are the same as presented in the main statement of the problem above.