It purchases cocoa beans and processes them into two intermediate products: chocolate-powder liquor base and milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 600 pounds of cocoa beans yields 20 gallons of chocolate-powder liquor base and 60 gallons of milk-chocolate liquor base. The chocolate-powder liquor base is further processed into chocolate powder. Every 20 gallons of chocolate-powder liquor base yield 680 pounds of chocolate powder. The milk-chocolate liquor base is further processed into milk chocolate. Every 60 gallons of milk-chocolate liquor base yield 1,100 pounds of milk chocolate.

Cocoa beans processed,

27,600

pounds

Costs of processing cocoa beans to splitoff point (including purchase of beans), $70,000

	Production	Sales	Selling Price	Separable Processing Costs
Chocolate powder	31,280 pounds	6,800 pounds	$8 per pound	$46,035
Milk chocolate	50,600 pounds	14,400 pounds	$9 per pound	$55,085

Rich and Creamy

Edibles Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2020, Rich and Creamy Edibles Factory could have sold the chocolate-powder liquor base for $21 a gallon and the milk-chocolate liquor base for $28 a gallon.

1.	Calculate how the joint costs of $70,000 would be allocated between chocolate powder and milk chocolate under the following methods:
	a.	Sales value at splitoff
	b.	Physical measure (gallons)
	c.	NRV
	d.	Constant gross-margin percentage NRV
2.	What are the gross-margin percentages of chocolate powder and milk chocolate under each of the methods in requirement 1?
3.	Could Rich and Creamy Edibles Factory have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computations