Johnston Adhesives Company makes three widely used industrial adhesives: A101, A204, and B216. Sales and production information for each of the three adhesives are shown in the following table. Most of Johnston's customers ask for a special blend of the three products which improves heat-resistance. The additional separable processing requires additional time and materials, and the price is increased accordingly, as shown in the table. Assume that Johnston produces only for specific customer orders, so there is no beginning or ending inventory. Assume also that all of Johnston's customers requested the heat-resistant version of the product, so that all production required additional separable processing. Total joint cost for the three products is $3,500,000.

Required
1. Using 4 or more decimal points to avoid rounding error, calculate the product cost and gross margin for each of the three product lines using the following methods:
(a) physical unit method, (b) sales value at split-off method, (c) the net realizable value method, and (d) the constant gross margin percentage method.
2. Which of the four methods do you think would be preferred in this case? Why?

Transcribed Image Text:

A101 A204 B216 175,000 35,000 115, Gallons sold Price/gal (after addit'l processing) Price at split-off Separable processing cost S 14 10 12 10 $550,000 $125,000 S625,000 10