XYZ 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 intermediary products become separately identifiable at a single splitoff point. Every 500 kilograms of cocoa beans yields 20 four-litre containers of chocolate powder liquor base and 30 four-litre containers of milk chocolate liquor base.

The chocolate powder liquor base is further processed into chocolate powder. Every 20 containers of chocolate powder liquor base yields 200 kilograms of chocolate powder. The milk chocolate liquor base is further processed into milk chocolate. Every 30 containers of milk chocolate liquor base yields 340 kilograms of milk chocolate.

The following is an overview of the manufacturing operations at XYZ Chocolates:

The August 2017 separable costs of processing chocolate powder liquor base into chocolate powder are $4,250. The August 2017 separable costs of processing milk chocolate liquor base into milk chocolate are

$8,750. Cost of remediation and reclamation of toxic waste amounted to $2,000 at splitoff point.

XYZ fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2017, XYZ could have sold chocolate powder liquor base for $21 a container and milk chocolate liquor base for $26 a container.

REQUIRED:

1. Calculate how the joint costs would be allocated using the NRV method

2. Should XYZ Chocolates process any of these products further? Show computations.

3. What is the effect of the NRV method on your analysis in requirement 2 above? Be specific

Joint Costs Separable Costs Chocolate Powder Liquor Processing Chocolate Powder Cocoa Beans Processing Milk Chocolate Processing Milk Chocolate SPLITOFF POINT Production and sales data for August 2017 are as follows: Cocoa beans processed, 5,000 kilograms Costs of processing cocoa beans to splitoff point (including purchase of beans) = $10,000 Chocolate powder Milk chocolate Sales 1,900 kilograms 3,000 kilograms Unit Selling Price $4 per kilogram $5 per kilogram Production Units