Leonard Corporation manufactures two products, I and II, from a joint process. A
ID: 2370001 • Letter: L
Question
Leonard Corporation manufactures two products, I and II, from a joint process. A single production costs $4,000 and results in 100 units of I and 400 units of II. To be ready for sale, both products must be processed further, incurring separable costs of $1 per unit for I and $2 per unit for II. The market price for Product I is $20 and for Product II is $15. Allocate joint production costs to each product using the physical units method. Allocate joint production costs to each product using the net realizable value method. Allocate joint production costs to each product using the constant gross margin percentage method. AngieExplanation / Answer
Joint Cost Allocation--joint costs need to be allocated to the joint
products for various reasons (such as inventory valuation for financial
accounting purposes, measuring profitability of joint products, pricing
decisions, cost reimbursement, etc.)
1. Physical Quantities Method--joint costs are allocated to the joint
products based on their relative physical measure (such as volume,
weight, etc.)
a. Illustration--a corporation incurred joint costs of $2,400 in
manufacturing Product A and Product B to the split-off point;
Product A weighed 700 pounds and had a sales value at the split-off
point of $1,800; Product B weighed 300 pounds and had a sales value
at the split-off point of $1,200
Cost Allocation:
Product A = 700 / (700 + 300) x 2,400 = 1,680
Product B = 300 / 1,000 x 2,400 = 720
2,400
Income Statement:
Product A Product B Total _
Sales 1,800 1,200 3,000
Cost of Goods Sold 1,680 720 2,400
Gross Margin 120 480 600
Gross Margin %:
Product A = 120 / 1,800 = 7%
Product B = 480 / 1,200 = 40%
Total = 600 / 3,000 = 20%
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