PATRICIA ELOISA M.
OLAVARIO
BSA-3C
JOINT PRODUCTS AND BY-PRODUCTS
PRACTICE PROBLEMS
Case 1: Cook Company
Requirement #1a
Statement of Joint Cost Allocation of Inventories of X, Y and Z for
Balance Sheet Purposes
(By using net realizable value method)
Products
X Y Z Total
Final sales value of total production 240,000 540,000 418,200 1,198,200
Less: Additional cost - - 200,000 200,000
Net realizable value at split off 240,000 540,000 218,200 998,200
Joint cost allocated in proportion
of NRV at split-off 139,451 313,765 126,784 580,000
Cost of Goods Sold for Income Statement Purposes as on March 31, 2003
(By using net realizable value method)
Products
X Y Z Total
Allocated Joint Cost 139,451 313,765 126,784 580,000
Additional Cost - - 200,000 200,000
Cost of goods available for sale (CGAS) 139,451 313,765 326,784 780,000
Less: Cost of year end inventory 92,038 62,753 11,699 (166,490)
(X: 66% Y: 20% Z: 3.58%) x CGAS
Cost of goods sold 47,413 251,012 315,085 613,510
Income Statement
(Showing Gross Margin and Gross Margin Percentage)
(By using net realizable value method)
Products
X Y Z Total
Sales Revenue 81,600 432,000 403,200 916,800
Less: Cost of Goods Sold 47,413 251,012 315,085 613,510
Gross Margin 34,187 180,988 88,115 303,290
Gross Margin % 41.90% 41.90% 21.85%
PATRICIA ELOISA M. OLAVARIO
BSA-3C
JOINT PRODUCTS AND BY-PRODUCTS
PRACTICE PROBLEMS
Requirement #1b
Statement of Joint Cost Allocation of Inventories of X, Y and Z for
Balance Sheet Purpose
(By using constant Gross Margin Percentage NRV Method)
Products
X Y Z Total
Final sales value of total production 240,000 540,000 418,200 1,198,200
Less: Gross Margin 34.9024% 83,766 188,473 145,962 418,201
156,234 351,527 272,238 779,999
Less: Additional Cost - - 200,000 200,000
Joint Cost Allocated 156,234 351,527 72,238 579,999
Cost of Goods Sold for Income Statement Purposes
(By using constant Gross Margin Percentage NRV Method)
Products
X Y Z Total
Allocated Joint Cost 156,234 351,527 72,238 579,999
Joint Cost 200,000 200,000
Cost of goods available for sale (CGAS) 156,234 351,527 272,238 779,999
Less: Cost of year end inventory 103,114 70,305 97,461 270,881
(X: 66% Y: 20% Z: 3.58%) x CGAS
Cost of goods sold 53,120 281,222 174,777 509,118
Income Statement
(Showing Gross Margin and Gross Margin Percentage)
(By using constant Gross Margin Percentage NRV Method)
Products
X Y Z Total
Sales Revenue 81,600 432,000 403,200 916,800
Less: Cost of Goods Sold 53,120 281,222 174,777 509,118
Gross Margin 28,480 150,778 228,423 407,682
Gross Margin % 34.90% 34.90% 56.65%
PATRICIA ELOISA M. OLAVARIO
BSA-3C
JOINT PRODUCTS AND BY-PRODUCTS
PRACTICE PROBLEMS
Requirement #2
Comparative Statement of Gross Margin Percentage of X, Y and Z
(Using Net Realizable Value and Constant Gross Margin Percentage NRV Method)
Products Gross Margin Percentages
X Y Z
Net Realizable Value Method 41.90% 41.90% 21.85%
Constant Gross Margin NRV Method 34.90% 34.90% 56.65%
Case 2: Kardash Cosmetics
Requirement #1
Joint costs for Kardash include:
Direct materials 440,000
Direct labor 220,000
Overhead costs 110,000
Total costs 770,000
Requirement #2
At split-off, the relative weights of the two perfumes are 7,000 ounces of Seduction
and 49,000 ounces of Romance (in the form of residue) respectively, Accordingly,
the allocation of joint costs under the physical measure method would be in the
ratio of 1:7, or as follows:
Seduction: 1/8 x 770,000 = 96,250
Romance: 7/8 x 770,000 = 673,750
Requirement #3
The relative sales values of production at split-off are as follows:
Seduction: 7,000 x 56 per ounce = 392,000
Romance: 49,000 x 24 per ounce = 1,176,000
The ratio of the sales values is 392:1176 0r 1:3. Accordingly, the joint costs are
allocated as:
Seduction: 1/4 x 770,000 = 192,500
Romance: 3/4 x 770,000 = 577,500
PATRICIA ELOISA M. OLAVARIO
BSA-3C
JOINT PRODUCTS AND BY-PRODUCTS
PRACTICE PROBLEMS
Requirement #4
Estimated net realizable value per ounce of Seduction perfume:
Selling price unit 109.50
Less: Unit packaging cost (137,500/5,000) 27.50
Estimated NRV per ounce 82.00
Estimated net realizable value per ounce of Romance perfume:
Selling price unit 31.50
Less: Unit packaging cost (196,000/28,000) 7.00
Unit processing cost (112,000/28,000) 4.00
Estimated NRV per ounce 20.50
Requirement #5
The estimated net realizable values of the two perfumes are as follows:
Seduction: 7,000 x 82 per ounce = 574,000
Romance: 49,000 x 20.50 per ounce = 1,004,500
The ratio of the ENRVs is 574,000:1,004500 or 4:7. Accordingly, the joint costs are
allocated as:
Seduction: 4/11 x 770,000 = 280,000
Romance: 7/11 x 770,000 = 490,000
Requirement #6
The gross margin of Kardash Cosmetics as a whole is the sum of the expected net
realizable values from Seduction and Romance Perfume, less the joint costs
incurred. From the calculations in requirement 5, this is given by:
ENRV of seduction (574,000) + ENRV of Romance (1,004,500) – Joint Costs
(770,000) = 808,500.
The final sales value of the total production is:
Seduction (7,000 x 109.50) + Romance (49,000 x 31.50) = 2,310,000.
The gross margin percentage for the firm as a whole is therefore:
808,500/2,310,000= 35%
PATRICIA ELOISA M. OLAVARIO
BSA-3C
JOINT PRODUCTS AND BY-PRODUCTS
PRACTICE PROBLEMS
Requirement #7
The joint cost allocations to Seduction and Romance under the constant gross-
margin percentage NRV method are given as follows:
Seduction Romance Total
Final sales value of production
7,000 x 109.50: 49,000 x 31.50 766,500 1,543,500 2,310,000
Gross Margin (35%) 268,275 540,225 808,500
Total costs 498,225 1,003,275 1,501,500
Separable costs
7,000 x 27.50: 49,000 x 11 192,500 539,000 731,500
Joint costs 305,725 464,275 770,000
Requirement #8
No. Selling the residue earns Kardash 24 per ounce. Selling Romance perfume yields
20.50 per ounce, which is lower. The manager of Kardash Cosmetics could earn as
extra 3.50 per ounce by selling residue rather than Romance.
