Atlantic Sand and Gravel Corp. produces two grades of sand: coarse and fine. Both grades are...
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Atlantic Sand and Gravel Corp. produces two grades of sand: coarse and fine. Both grades are used to manufacture industrial abrasives. The results of operations for the last year were as follows: Coarse Fine Total 4,000 tonnes 6,000 tonnes 10,000 tonnes $ 90,000 $240,000 $ 35,000 Production Sales value at split-off point $40,000 Revenue $90,000 Separable costs $20,000 $ 50,000 $150,000 $ 15,000 Joint product costs were $100,000. There were no beginning inventories. Required: a) Allocate the joint costs, using the physical output method. b) Allocate the joint costs, using the sales value at split-off point method. c) Allocate the joint costs, using the net realizable value method. d) Allocate the joint costs, using the constant gross margin NRV method. e) Discuss the pros and cons of each method. f) Suppose fine sand can be processed further by mixing in colour. The cost of adding colour is $15 per tonne, and the sand can then be sold for $35 per tonne. Should fine sand be processed further? g) What uncertainties do managers face in making the decision in Part f? h) Which of the options in Part f involves greater uncertainties and, therefore, greater risk for the company? Explain. Atlantic Sand and Gravel Corp. produces two grades of sand: coarse and fine. Both grades are used to manufacture industrial abrasives. The results of operations for the last year were as follows: Coarse Fine Total 4,000 tonnes 6,000 tonnes 10,000 tonnes $ 90,000 $240,000 $ 35,000 Production Sales value at split-off point $40,000 Revenue $90,000 Separable costs $20,000 $ 50,000 $150,000 $ 15,000 Joint product costs were $100,000. There were no beginning inventories. Required: a) Allocate the joint costs, using the physical output method. b) Allocate the joint costs, using the sales value at split-off point method. c) Allocate the joint costs, using the net realizable value method. d) Allocate the joint costs, using the constant gross margin NRV method. e) Discuss the pros and cons of each method. f) Suppose fine sand can be processed further by mixing in colour. The cost of adding colour is $15 per tonne, and the sand can then be sold for $35 per tonne. Should fine sand be processed further? g) What uncertainties do managers face in making the decision in Part f? h) Which of the options in Part f involves greater uncertainties and, therefore, greater risk for the company? Explain.
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Answer rating: 100% (QA)
To allocate the joint costs using different methods we need to understand the concepts of each method The joint costs are the costs incurred up to the splitoff point when multiple products are produce... View the full answer
Related Book For
Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin
Posted Date:
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