Question

Choi Company manufactures two skin care lotions, Smooth Skin and Silken Skin, from a joint process. The joint costs incurred are $390,000 for a standard production run that generates 270,000 pints of Smooth Skin and 290,000 pints of Silken Skin. Smooth Skin sells for $2.30 per pint, while Silken Skin sells for $4.50 per pint. (Do not round intermediate calculations. Round final answers to nearest whole dollar amounts.) Required: 1. Assuming that both products are sold at the split-off point, how much of the joint cost of each production run is allocated to Smooth Skin using the relative sales value method? 2. If no separable costs are incurred after the split-off point, how much of the joint cost of each production run is allocated to Silken Skin using the physical measure method? 3. If separable processing costs beyond the split-off point are $1.20 per pint for Smooth Skin and $1.50 per pint for Silken Skin, how much of the joint cost of each production run is allocated to Silken Skin using a net realizable value method? 4. If separable processing costs beyond the split-off point are $1.20 per pint for Smooth Skin and $1.50 per pint for Silken Skin, how much of the joint cost of each production run is allocated to Smooth Skin using a physical measure method? 2 1. Relative sales value method - Smooth Skin Physical measure method - Silken Skin Net realizable value method - Silken Skin 4. Physical measure method - Smooth Skin 3.

Answer 1

1	Relative Sales Value Method
	Products	Pints	Price at split off (per pint)	Sales value at split off	Percentage of total		Joint cost allocated
	Smooth Skin	270000	2.3	621000	32%	(621000/1926000)	1,25,748
	Silken Skin	290000	4.5	1305000	68%	(1305000/1926000)	2,64,252
				1926000	100%		3,90,000
2	Physical measure method
	Product	Pints	Percentage of total		Joint cost allocated
	Smooth Skin	270000	48%	(270000/560000)	1,88,036	(3,90,000*48%)
	Silken Skin	290000	52%	(290000/560000)	2,01,964	(3,90,000*52%)
		560000			3,90,000
3	Net realizable value method
	Product	Pints	Costs to process further	Selling price after further processing	Net realizable value per pint	Net realizable value	Precentage of total	Joint cost allocated
	Smooth Skin	270000	1.2	2.3	1.1	297000	25%	99,254
	Silken Skin	290000	1.5	4.5	3	870000	75%	2,90,746
						1167000		3,90,000
4	The physical measures have not changed, so the joint cost allocation using this method will be same whether there are separate processing costs or not
	Product	Pints	Percentage of total		Joint cost allocated
	Smooth Skin	270000	48%	(270000/560000)	1,88,036	(3,90,000*48%)
	Silken Skin	290000	52%	(290000/560000)	2,01,964	(3,90,000*52%)
		560000			3,90,000