Question

Joint cost allocation Lovely Lotion Inc. produces three different lotions: hand, body, and foot. The lotions are produced jointly in a mixing process that costs a total of $250 per batch. At the split-off point, one batch produces 80, 40, and 25 bottles of hand, body, and foot lotion, respectively. After the split-off point, hand lotion is sold immediately for $2.50 per bottle. Body lotion is processed further at an additional cost of $0.25 per bottle and then sold for $5.75 per bottle. Foot lotion is processed further at an additional cost of $0.85 per bottle and then sold for $4.00 per bottle. Assume that body and foot lotion could be sold at the split-off point for $3.00 and $3.20 per bottle, respectively. 1. Using the market value at split-off method, allocate the joint costs of production to each product. Round your answers to two decimal places. Market Value per Bottle at Split-Off Bottles per Batch Total Market Value at Split-Off Percent of Total MV at Split-Off Joint Product Joint Costs Allocation Hand lotion Body lotion % Foot lotion Totals 2. A lotion manufacturing company produces three types of lotions. After the split-off point the company continues to sell the body lotion and makes $0.25 profit per bottle. The foot lotion generates $0.05 loss per bottle if it continues after the split-off point. Which lotion should be continued after the split-off point? a. Hand lotion b. Body lotion c. Foot lotion d. Body and foot lotion

Answer 1

34 Joint Costs Allocation 32 Using the market value at split-off method, allocate the joint costs of production to each product. 33 Joint Product Bottles per Market Value Total Market Value Percent of Total MV Batch Per Bottle at a t Split -off at Split -off (A) Split off (B) (A*B)=(C) (C/400) = (D) Hand Lotion 80 2.50 200 50% Body Lotion 40 3.00 120 30% Foot Lotion 25 80 20% Totals 400 (E) 250 250 250 (D*E) 125 75 50 3.20 145 250 42 2. A lotion manufacturing company produces three types of lotions. After the split-off point the company 43 continues to sell the body lotion and makes $0.25 profit per bottle. The foot lotion generates $0.05 loss per 44 bottle if it continues after the split-off point. Which lotion should be continued after the split-off point? 45 46 Answer B) Body Lotion 47 48 Allocate the joint costs according to net realizable value. 49 Joint Product Bottles per Market Value Total Market Value Market Price Added Cost Per NRV Per Total Net Batch Per Bottle at at Split -off Per Bottle Bottle Bottle Realizable (A) Split off (B) (A*B) = (C) (D) (D-E) = (F) Value (A *F) Hand Lotion 2.50 200 2.50 0 2.50 200 Body Lotion 3.00 120 5.75 0.25 5.50 Foot Lotion 3.20 80 4.00 0.85 3.15 78.75 Totals 145 80 Greater of Total NRV Proportion Joint Costs Allocation and total Market value at split off (G) (G/500) = (H) (1) (H*1) 200 40% 250 100 220 44% 16% 250 4 0 250] 220 250 110 3 400