Schmidsendl GmbH buys crude vegetable oil. Refining this oil results in four products at the split-off point:
Question:
Product A................ 300000 litres
Product B................ 100000 litres
Product C............... 50000 litres
Product D............... 50000 litres
The joint costs of purchasing the crude vegetable oil and processing it were ¬100000. Schmidsendl had no beginning or ending stocks. Sales of product C in December were ¬50000. Total output of products A, B and D was further refined and then sold. Data related to December are as follows:
Schmidsendl had the option of selling products A, B and D at the split-off point. This alternative would have yielded the following sales for the December production:
Product A............. ¬50000
Product B............. 30000
Product D............ 70000
Required
1. What is 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 split-off, (b) physical measure, and (c) estimated NRV?
2. Could Schmidsendl have increased its December operating profit by making different decisions about the further refining of products A, B or D? Show the effect on operating profit of any changes you recommend.
Step by Step Answer:
Management and Cost Accounting
ISBN: 978-1405888202
4th edition
Authors: Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, George Foster