Gem Potato Processors produces three products: fries, nuggets and crunchy peels.
ID: 2473021 • Letter: G
Question
Gem Potato Processors produces three products: fries, nuggets and crunchy peels. They are all made from a cull potatoes they purchase from sorting sheds. Follow is information about each product. Fries Nuggets Peelings Pounds Produced 50,000 40,000 10,000 Pounds Sold at Retail Point 45,000 35,000 10,000 Sales Price at Split-off $3.00 $2.00 $1.00 Retail Sales Price $5.00 $4.00 $1.00 Separate Costs $50,000 $20,000 $0 Joint Costs before Split-off Point is $200,000. Required: 1. Allocate the joint costs using the NRV method. 2. Allocate the joint costs using the physical units method. 3. What is the other acceptable method used to allocate joint costs? 4. Which is the best method and why?
Explanation / Answer
Gem Potato Processors All Amounts in $ Product Quantity Quantity Price Value Split Net Separate Retail Retail Net Income Produced Sold at split off at Split off costs Gain Costs Sales price Sales post Pounds Pounds off Value Split Off Fries 50000 45000 3 135000 50000 5 225000 175000 Nuggets 40000 35000 2 70000 20000 4 140000 120000 Crunchy Peels 10000 10000 1 10000 0 1 10000 10000 Total Units 100000 215000 Total at Split Off NRV 305000 1. Allocation of Joint Costs on NRV Method (Net Income post Split Off) Revenue Costs Fries 175000 114754 Nuggets 120000 78689 Crunchy Peels 10000 6557 305000 2. Allocation of Joint Costs on Physical Units Method (Units produced) Units Costs Fries 50000 100000 Nuggets 40000 80000 Crunchy Peels 10000 20000 100000 3. The third method of allocating joint costs is on the basis of the revenue generated at split off point Split Off Revenue Costs Fries 135000 125581 Nuggets 70000 65116 Crunchy Peels 10000 9302 215000 4. The allocation of joint costs on the basis of the physical units is considered to be the best method, since profits are maximum ($ 115,000) if the products are sold at split-off point, without incurring separate costs thereagainst.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.