Chapter 7, Problem 49P

1.

To determine

Ascertain the product cost for all the products using all three methods.

Explanation of Solution

Compute the joint production and manufacturing costs:

Physical Measure Method:

Particulars	Y64	G22	X17	Total
Price	$10.50	$6.75	$4.22
Units produced	22,000	45,500	18,000	85,500
Separable Processing Costs	$65,500	$34,250	$55,400	$155,150
Sales price at split-off	$2.24	$2.88	$0.44
Sales value	$231,000	$307,125	$75,960	$614,085
Sales value at split-off	$49,280	$131,040	$7,920	$188,240
Increase in sales value	$116,220	$141,835	$12,640
Units produced	22,000	45,500	18,000	$85,500
Percentage of Total	25.7310%	53.2164%	21.0526%
Joint cost allocation	$91,602	$189,450	$74,947	$356,000
Add: Separable Costs	$65,500	$34,250	$55,400	$155,150
Total costs	$157,102	$223,700	$130,347
(÷) Units produced	22,000	45,500	18,000
Cost per Unit	$7.1410	$4.9165	$7.2415
Sales	$231,000	$307,125	$75,960	$614,085
Allocated Costs	$91,602	$189,450	$74,947	$356,000
Add: Separable Costs	$65,500	$34,250	$55,400	$155,150
Total costs	$157,102	$223,700	$130,347	$511,150
Gross Margin	$73,898	$83,425	($54,387)	$102,936

Table (1)

Sales value at split-off Method:

Particulars	Y64	G22	X17	Total
Price	$10.50	$6.75	$4.22
Separable Processing Costs	$65,500	$34,250	$55,400	$155,150
Units produced	22,000	45,500	18,000	85,500
Total Joint Cost				$356,000
Sales price at split-off	$2.24	$2.88	$0.44
Sales value	$231,000	$307,125	$75,960	$614,085
Sales value at split-off	$49,280	$131,040	$7,920	$188,240
Sales Value at split-off	$49,280	$131,040	$7,920	$188,240
Percentage of Total sales value	26.1793%	69.6133%	4.2074%	100.0000%
Joint cost allocation	$93,198	$247,823	$14,978	$356,000
Add: Separable Costs	$65,500	$34,250	$55,400	$155,150
Total costs	$158,698	$282,073	$70,378
(÷) Units produced	22,000	45,500	18,000
Cost per Unit	$7.2135	$6.1994	$3.9099
Sales	$231,000	$307,125	$75,960	$614,085
Allocated Costs	$93,198	$247,823	$14,978	$356,000
Add: Separable Costs	$65,500	$34,250	$55,400	$155,150
Total costs	$158,698	$282,073	$70,378	$511,150
Gross Margin	$72,302	$25,052	$5,582	$102,936

Table (2)

Net Realizable Value Method:

Particulars	Y64	G22	X17	Total
Price	$10.50	$6.75	$4.22
Separable Processing Costs	$65,500	$34,250	$55,400	$155,150
Units produced	22,000	45,500	18,000	85,500
Total Joint Cost	$356,000			$356,000
Sales value	$231,000	$307,125	$75,960	$614,085
Sales Value of production	$231,000	$307,125	$75,960	$614,085
Less: Separable Costs	$65,500	$34,250	$55,400	$155,150
Sales Value at split-off	$165,500	$272,875	$20,560	$458,935
Percentage of Total sales value	36.0618%	59.4583%	4.4799%	100.0000%
Joint cost allocation	$128,380	$211,672	$15,949	$356,000
Add: Separable Costs	$65,500	$34,250	$55,400	$155,150
Total costs	$193,880	$245,922	$71,349	$511,150
(÷) Units produced	22,000	45,500	18,000
Cost per Unit	$8.8127	$5.4049	$3.9638
Sales	$231,000	$307,125	$75,960	$614,085
Allocated Costs	$128,380	$211,672	$15,949	$356,000
Add: Separable Costs	$65,500	$34,250	$55,400	$155,150
Total costs	$193,880	$245,922	$71,349	$511,150
Gross Margin	$37,120	$61,203	$4,611	$102,935

Table (3)

2.

To determine

Ascertain the most appropriate method of cost allocation.

Explanation of Solution

The Net Realizable Method would be the most preferred as all the products are further processed and this method records all the separable costs.

3.

To determine

Ascertain the products to be processed beyond the split off point and comment on the decision of Person Y.

Explanation of Solution

The decision made by Person Y is acceptable as all the three products have better revenue after the further processing. Thus, its acceptable to process all the products.

4.

To determine

Ascertain the effectiveness of the strategy of Person Y.

Explanation of Solution

The decision made by Person Y to reduce the recycling costs would be encouraged by the management. The customers are growing more aware of the environmental issues and are happy to pay a higher price, if the products are environmental friendly. Making use of the recycled product itself is an unique selling point for the company, and shall bring in more customers.

5.

To determine

Identify the issues Person Y should consider to execute the strategy effectively.

Explanation of Solution

The issues faced by Person Y include:

• Source of raw materials and the quality of the goods
• Transportation charges involved in transit of raw materials
• Environmental risks related to transport of raw materials
• Changes in the foreign exchange prices and losses due to them

6.

To determine

Identify the steps to be taken by Person Y, to improve the overall operational efficiency.

Explanation of Solution

Person Y may try the following steps to improve the overall operational efficiency:

• Reduce the waste resulting from the process of recycling
• Reducing the energy consumption in the production process