Diggle, Inc. manufactures three products in a joint process that costs $310,000

Question

Diggle, Inc. manufactures three products in a joint process that costs $310,000 and results in 40,000 pounds of Product A, 50,000 pounds of Product B, and 10,000 pounds of Product C. Product A could sell at splitoff for $3.00/pound, but Diggle processes it further at a cost of $2.00/pound and eventually sells it for $7.00/pound. Product B could sell at splitoff for $5.00/pound, but Diggle processes it further at a cost of $3.00/pound and sells it for $9.00/pound. Product C is a byproduct that sells at splitoff for $1.00/pound. Diggle uses net realizable value as a cost allocation base for joint costs, and accounts for byproducts at the time of production.

1)

What is the amount of joint costs that should be allocated to Product A?

2)

What is the amount of joint costs that should be allocated to Product B?

3)

What is the amount of joint costs that should be allocated to Product C?

4)

What is the profitability for Product A?

5)

What is the profitability for Product B?

6)

What is the total profitability for Diggle, Inc.?

Explanation / Answer

Total Joint cost : 310,000 Less: Realizable value of By Product-C 10000 (10,000 pounds @1) Joint cost to be allocated between main product 300,000 Product A Product B Production In pounds 40,000 50000 Selling price per ppound after further processing 7 9 Further processing cost per pound 2 3 Sales revenue after further processing 280,000 450,000 Less: Further processing cost 80000 150000 net Realizable value 200,000 300,000 Remaining Joint cost $ 300,000 in ratio of 2:3 Share of Joint cost 120,000 180,000 Share of Joint cost is as follows: Product A 120,000 Product B 180,000 Product C 10,000 Total Joint cost 310,000 Profitability of Company Product A Product B Product C COMPANY Sales revenue 280,000 450,000 10,000 740,000 Less: Total Cost Share of Joint cost 120,000 180,000 10,000 310,000 Further procesisng cost 80,000 150,000 0 230,000 Profit margin 80,000 120,000 0 200,000

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