The Sunshine Oil Company buys crude vegetable oil. Refining this oil results in four products at the
Question:
Product A, 300,000 litres.
Product B, 100,000 litres.
Product C, 50,000 litres.
Product D, 50,000 litres.
The joint costs of purchasing and processing the crude vegetable oil were $100,000. Sunshine had no beginning or ending inventories. Sales of product C in December were $50,000. Products A, B, and D were further refined and then sold. Data related to December are:
Sunshine had the option of selling products A, B, and D at the splitoff point. This alter- native would have yielded the following revenues for the December production:
Product A, $50,000.
Product B, $30,000.
Product D, $70,000.
REQUIRED
1. Compute the gross margin percentage for each product sold in December, using the following methods for allocating the $100,000 joint costs:
a. Sales value at splitoff.
b. Physical measure.
c. NRV.
2. Could Sunshine have increased its December operating income by making different decisions about the further processing of products A, B, or D? Show the effect on operating income of any changes you recommend
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ