3 ab Physical measure (litres) method Methanol Turpentine Total Sales €52,500 €105,000 €157,500 Cost of goods sold Joint costs 30,000 90,000 120,000 Separable costs 7,500 15,000 22,500 Total costs 37,500 105,000 142,500 Gross margin €15,000 € 0 €15,000 b Estimated net realisable value method Methanol Turpentine Total Sales €52,500 €105,000 €157,500 Cost of goods sold Joint costs 40,000 80,000 120,000 Separable costs 7,500 15,000 22,500 Total costs 47,500 95,000 142,500 Gross margin €5,000 €10,000 €15,000 4 Wood Alcohol Turpentine Total Wood alcohol Turpentine Total Expected final sales value of production, WA, 2,500 × €60.00; T, 7,500 × €14.00 €150,000 €105,000 €255,000 Deduct expected separable costs to complete and sell, WA, 2,500 × €12.00 + 0.20 × €150,000; T, 7,500 × €2.00 60,000 15,000 75,000 Estimated net realisable value at split-off point €90,000 €90,000 €180,000 Weighting , , € 90 000 € 180 000 = 0.5 , , €90 000 €180 000 = 0.5 1.0 Joint costs allocated, WA, 0.5 × €120,000; T, 0.5 × €120,000 €60,000 €60,000 €120,000
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 An incremental approach demonstrates that the company should use the new process Incremental revenue, (€60.00 − €21.00) × 2,500 €97,500 Incremental costs Added processing, €9.00 × 2,500 €22,500 Taxes, (0.20 × €60.00) × 2,500 30,000 52,500 Incremental operating income from further processing €45,000 Proof Total sales of both products €255,000 Joint costs 120,000 Separable costs 75,000 Cost of goods sold 195,000 New gross margin 60,000 Old gross margin 15,000 Difference in gross margin €45,000 Share with your friends: |