Solution Exhibit 6.20 [AQ6]
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 6.21 Alternative methods of joint-cost allocation, product-mix decisions. (40 min) A diagram of the situation is in Solution Exhibit 6.21. 1 Calculation of joint-cost allocation proportions aSales value Allocation of €100,000 at split-off Proportions joint costs ABC D 70,000 70/200 = 0.35 35,000 €200,000 1.00 €100,000 bAllocation of €100,000 Physical measure(litres) Proportions joint Costs ABC D 50,000 50/500 = 0.10 10,000 500,000 1.00 €100,000 c Final sales value Separable costs Estimated net realisable value Proportions Allocation of €100,000 joint costs ABC 50,000 50/200 = 0.25 25,000 D 120,000 90,000 30,000 30/200 = 0.15 15,000 €200,000 1.00 €100,000 Calculation of gross-margin percentages a Sales value at split-off method Super A Super B Super C Super D Total Sales €300,000 €100,000 €50,000 €120,000 €570,000 Joint costs 25,000 15,000 25,000 35,000 100,000 Separable costs 200,000 80,000 0 90,000 370,000 Total costs 225,000 95,000 25,000 125,000 470,000 Gross margin €75,000 €5,000 €25,000 €(5,000) €100,000 Gross-margin percentage 25% 5% 50% (4.17%) 17.54%
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 b Physical measure method Super A Super B Super C Super D Total Sales €300,000 €100,000 €50,000 €120,000 €570,000 Joint costs 60,000 20,000 10,000 10,000 100,000 Separable costs 200,000 80,000 0 90,000 370,000 Total costs 260,000 100,000 10,000 100,000 470,000 Gross margin €40,000 € 0 €40,000 €20,000 €100,000 Gross-margin percentage 13.33% 0% 80% 16.67% 17.54% c Estimated net realisable value method Super A Super B Super C Super D Total Sales €300,000 €100,000 €50,000 €120,000 Joint costs 50,000 10,000 25,000 15,000 Separable costs 200,000 80,000 0 90,000 370,000 Total costs 250,000 90,000 25,000 105,000 Gross margin €50,000 €10,000 €25,000 €15,000 €100,000 Gross-margin percentage 16.67% 10% 50% 12.5% Summary of gross-margin percentages Joint cost allocation method Super A Super B Super CSuper D Sales value at split-off 25.00% 5% 50% (4.17%) Physical measure 13.33% 0% 80% 16.67% Estimated net realisable value 16.67% 10% 50% 12.50% 2 Further processing of A into Super A Incremental revenue, €300,000 − €50,000 €250,000 Incremental costs 200,000 Incremental operating income from further processing €50,000 Further Processing of B into Super B Incremental revenue, €100,000 − €30,000 €70,000 Incremental costs 80,000 Incremental operating income from further processing (€10,000) Further Processing of D into Super D Incremental revenue, €120,000 − €70,000 €50,000 Incremental costs 90,000 Incremental operating income from further processing €(40,000) Operating income can be increased by €50,000 if both Band Dare sold at their split-off point.
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