Methods of joint-cost allocation, comprehensive. Kardash Cosmetics purchases flowers in bulk and processes them into perfume. From a certain mix of petals, the firm uses Process A to generate Seduction, its high-grade perfume, as well as a certain residue. The residue is then further treated, using Process B, to yield Romance, a medium-grade perfume. An ounce of residue typically yields an ounce of Romance. In July, the company used 25,000 pounds of petals. Costs involved in Process A, i.e., reducing the petals to Seduction and the residue, were: Direct Materials – $440,000; Direct Labor – $220,000; Overhead Costs – $110,000. The additional costs of producing Romance in Process B were: Direct Materials - $22,000; Direct Labor – $50,000; Overhead Costs - $40,000. During July, Process A yielded 7,000 ounces of Seduction and 49,000 ounces of residue. From this, 5,000 ounces of Seduction were packaged and sold for $109.50 an ounce. Also, 28,000 ounces of Romance were processed in Process B and then packaged and sold for $31.50 an ounce. The other 21,000 ounces remained as residue. Packaging costs incurred were $137,500 for Seduction and $196,000 for Romance. The firm has no beginning inventory on July 1. If it so desired, the firm could have sold unpackaged Seduction for $56 an ounce and the residue from Process A for $24 an ounce.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Under the net realizable value method, what portion of the joint costs would be allocated to Seduction and Romance, respectively?

Methods of joint-cost allocation, comprehensive. Kardash Cosmetics purchases flowers in bulk and
processes them into perfume. From a certain mix of petals, the firm uses Process A to generate Seduction, its
high-grade perfume, as well as a certain residue. The residue is then further treated, using Process B, to yield
Romance, a medium-grade perfume. An ounce of residue typically yields an ounce of Romance.
In July, the company used 25,000 pounds of petals. Costs involved in Process A, i.e., reducing the petals
to Seduction and the residue, were:
Direct Materials – $440,000; Direct Labor – $220,000; Overhead Costs – $110,000.
The additional costs of producing Romance in Process B were:
Direct Materials - $22,000; Direct Labor – $50,000; Overhead Costs - $40,000.
During July, Process A yielded 7,000 ounces of Seduction and 49,000 ounces of residue. From this, 5,000
ounces of Seduction were packaged and sold for $109.50 an ounce. Also, 28,000 ounces of Romance were
processed in Process B and then packaged and sold for $31.50 an ounce. The other 21,000 ounces remained
as residue. Packaging costs incurred were $137,500 for Seduction and $196,000 for Romance. The firm has
no beginning inventory on July 1.
If it so desired, the firm could have sold unpackaged Seduction for $56 an ounce and the residue from
Process A for $24 an ounce.

Expert Solution

Step 1

Incremental analysis:

Incremental analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

Decision making:

Decision making can be defined as the process of making choices through the identification of a decision, collecting information, and assessing alternative resolutions. The implementation of a step-by-step process of decision making helps in making deliberate and effective decisions through proper organization of relevant information and defining alternatives.

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