Question

The Stenback Company produces two products, turpentine and methanol (wood alcohol), by a joint process. Joint costs amount to $144,000 per batch of output. Each batch totals 40,000 litres: 25% methanol and 75% turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol, $0.90 per litre; turpentine, $0.60 per litre. Methanol sells for $6.30 per litre; turpentine sells for $4.20 per litre. Required Methanol Turpentine Total Physical measure of total production 10,000 30,000 40,000 Weighting 0.25000 0.75000 1.00000 Joint costs allocated $ 36,000 $ 108,000 $ 144,000 Requirement 2. If joint costs are allocated on an NRV basis, calculate the amount of the joint costs that will be allocated to turpentine and to methanol. (Round the weightings to five decimal places. Round joint costs allocated to the nearest dollar.) Final sales value of total production Methanol Turpentine $ 63,000 $ 126,000 $ 9,000 18,000 Total 189,000 27,000 Deduct separable costs $ 54,000 $ 108,000 $ 162,000 NRV at splitoff point Weighting Joint costs allocated 0.33333 48,000 $ 0.66667 96,000 $ 1.00000 144,000 $ Requirement 3. Prepare product-line income statements per batch for requirements 1 and 2. Assume no beginning or ending inventories. Begin with the physical measure method. (Use parentheses or a minus sign to enter negative amounts.) Methanol Turpentine Total Revenue Cost of goods sold Joint costs Separable costs Total cost of goods sold Gross margin

Answer 1

	The Stenback Company
	Physical measure method
		Methanol	Turpentine	Total
	Revenue(40000*25%*$6.30),(40000*75%*$4.20)=(A)	$ 63,000.00	$       1,26,000.00	$ 1,89,000.00
	Cost of goods sold
	Joint Costs(As per requirement 1)	$ 36,000.00	$       1,08,000.00	$ 1,44,000.00
	Separable Costs(40000*25%*.90),(40000*75%*.60)	$    9,000.00	$           18,000.00	$     27,000.00
	Total cost of goods sold=(B)	$ 45,000.00	$       1,26,000.00	$ 1,71,000.00
	Gross Margin=(A)-(B)	$ 18,000.00	$                          -	$     18,000.00
	The Stenback Company
	Net Realizable value method
		Methanol	Turpentine	Total
	Revenue(40000*25%*$6.30),(40000*75%*$4.20)=(A)	$ 63,000.00	$       1,26,000.00	$ 1,89,000.00
	Cost of goods sold
	Joint Costs(As per requirement 2)	$ 48,000.00	$           96,000.00	$ 1,44,000.00
	Separable Costs(40000*25%*.90),(40000*75%*.60)	$    9,000.00	$           18,000.00	$     27,000.00
	Total cost of goods sold=(B)	$ 57,000.00	$       1,14,000.00	$ 1,71,000.00
	Gross Margin=(A)-(B)	$    6,000.00	$           12,000.00	$     18,000.00