Question

Aromasoaps is a bulk buyer of soap by-products. These by-products are combined with secret recipe essences to develop three products. Joint costs for processing the soaps are $90,000. Aromasoaps treats all of its products as main products. Data for the products follow:


REQUIRED
A. Which of the products should be further processed? Explain.
B. If Aromasoaps pursues the optimal product mix, what is the maximum profit that can be achieved?
C. If Aromasoaps allocates the joint costs based on the physical volume method (number of units), how much joint cost will be allocated to each product?
D. If Aromasoaps allocates the joint costs based on the NRV method, how much joint cost will be allocated to each product?
E. Now suppose that Aromasoaps incorrectly uses the final sales value of each product without considering separable costs to allocate joint costs. How much joint cost will be allocated to each product? Why is this method inappropriate?
F. Suppose managers incorrectly use gross margin after allocations to make the decision about processing further. How would each of the allocations in parts (C), (D), and (E) affect your answer to B?Explain.


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  • CreatedJanuary 26, 2015
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