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The Cocoa Nibs Factory manufactures and distributes chocolate products. It purchases cocoa beans and processes them into two intermediate? products: chocolate-powder liquor base and? milk-chocolate

The Cocoa Nibs Factory manufactures and distributes chocolate products. It purchases cocoa beans and processes them into two intermediate? products: chocolate-powder liquor base and? milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 900 pounds of cocoa beans yields 30 gallons of? chocolate-powder liquor base and 120 gallons of? milk-chocolate liquor base. The? chocolate-powder liquor base is further processed into chocolate powder. Every 30 gallons of? chocolate-powder liquor base yield 670 pounds of chocolate powder. The? milk-chocolate liquor base is further processed into milk chocolate. Every 120 gallons of? milk-chocolate liquor base yield 1 comma 090 pounds of milk chocolate.

Production and sales data for August 2014 are as follows? (assume no beginning? inventory):

times

Cocoa beans? processed, 19,800 pounds

times

Costs of processing cocoa beans to splitoff point? (including purchase of? beans), $68,000

Production

Sales

Selling Price

Separable Processing Costs

Chocolate powder

14,740

pounds

6,700

pounds

$12

per pound

$8,975

Milk chocolate

23,980

pounds

14,500

pounds

$10

per pound

$91,095

Cocoa Nibs 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 2014?, Cocoa Nibs Factory could have sold the? chocolate-powder liquor base for $24 a gallon and the? milk-chocolate liquor base for $9 a gallon.

1.

Calculate how the joint costs of $68,000 would be allocated between chocolate powder and milk 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 Cocoa Nibs Factory have increased its operating income by a change in its decision to fully process both of its intermediate? products? Show your computations.

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