Question

Allocating Joint Costs Using the Constant Gross Margin Method A company manufactures three products, L. Ten, Triol, and Pioze, from a joint process. Each production run costs $12,900. None of the products can be sold at split off, but must be processed further. Information on one batch of the three products is as follows: Product Gallons Further Processing Cost per Gallon $0.50 Eventual Market Price per Gallon L-Ten $2.00 Triol 3,700 4,000 2,300 1.00 5.00 Pioze 1.50 6.00 Required: 1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze. Total Revenue $ 41,200 Total Costs $ 22,200 Total Gross Profit $ 19,000 2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar. Joint Cost Product Allocation L-Ten 0.47 X

Answer 1

		Joint Profit Margin
			=$19000/41200 *100
			=46.1165%
	2)
				L-Ten	Triol	Pioze	Total
		a	Gallons	3700	4000	2300	10000
		b	Market Price (per Gallon) ($)	2	5	6
		c	Revenue ($)	7400	20000	13800	41200
		d	Less: Gross Profit Margin	3413	9223	6364	19000
			(c*46.1165%)
		e	Total Cost	3987	10777	7436	22200
			(c-d)
		f	Separable Cost	1850	4000	3450	9300
		g	Joint Cost	$2137	6777	3986	12900
			(e-f)
	3)	Revised
			Revenue	$41200
			Less:
			Separable Cost
			L-Ten (3700*.5)	1850
			Triol (4000*2)	8000
			Pioze (2300*1.50)	3450
			Joint Cost	12900
			Gross Profit	$15000
			Gross Profit Margin	=15000/41200*100
				=36.4077%
				L-Ten	Triol	Pioze	Total
		a	Gallons	3700	4000	2300	10000
		b	Market Price (per Gallon) ($)	2	5	6
		c	Revenue ($)	7400	20000	13800	41200
		d	Less: Gross Profit Margin	2694	7282	5024	15000
			(c*36.4077%)
		e	Total Cost	4706	12718	8776	26200
			(c-d)
		f	Separable Cost	1850	8000	3450	13300
		g	Joint Cost	$2856	4718	5326	12900