Question

Joint Products Johnston Adhesives Company makes three widely used industrial adhesives:
A101, A204, and B216. Sales and production information for each of the three adhesives are
shown in the following table. Most of Johnston’s customers ask for a special blend of the three
products which improves heat-resistance. The additional separable processing requires additional
time and materials, and the price is increased accordingly, as shown in the table. Assume
that Johnston produces only for specific customer orders, so there is no beginning or ending
inventory. Assume also that all of Johnston’s customers requested the heat-resistant version of
the product, so that all production required additional separable processing. Total joint cost for
the three products is $3,500,000.

A101 A204 B216 Gallons sold Price/gal (after addit'l processing) Price at split-off Separable processing cost 175,000 135,000 115,000 $14$10$12 10 S550,000 10 $625,000 S125,000

1. Using 4 or more decimal points to avoid rounding error, calculate the product cost and gross margin for
each of the three product lines using the following methods:
(a) physical unit method, (b) sales value at split-off method, (c) the net realizable value method, and
(d) the constant gross margin percentage method.

Answer 1

Answer

a. physical unit method product Qty Produced (tons) Oty Produced (tons) A101 A204 B216 Total 175,000 175,000 41.18% 1,441,176 550000 1,991,176 135,000 135,000 31.76% 1,111,765 125000 115,000 115,000 27.06% 947,059 425,000 Cost Apportionment of Joint Cost $3,500,000 Separable costs 3,500,000 625000 1,300,000 1,236,765 1,572,059 4,800,000 11.38 $ 9.16$13.67 Cost per unit SP Sales (tons) Cost of sales Sales Value Gross Profit Gross profit% 10 135,000 14 175,000 1,991,176 2,450,000 458,824 18.73% 12 115,000 1,236,765 1,572,0594,800,000 1,380,0005,180,000 1,350,000 113,235 8.39% 192,059 13.92% 7.34%

Sales Value at Split-off product Qty Produced (tons) SP at split-off Sales Value A101 A204 B216 Total 175,000 10 1,750,000 115,000 10 675,0001,150,000 135,000 5 3,575,000 Sales Value at Split-off 1,750,000 48.95% 1,713,287 550,000 2,263,287 3,575,000 1009 660,8391,125,874 3,500,000 125,000 625,000 1,300,000 785,8391,750,8744,800,000 675,000 18.88% 1,150,000 32.17% Separable costs 12.93 $ 5.82$15.22 Cost per unit SP Sales (tons) Cost of sales Sales Value Gross Profit Gross profit % 10 12 115,000 1,750,874 14 175,000 2,263,287 2,450,000 186,713 7.62% 135,000 4,800,000 1,380,000 5,180,000 1,350,000 564,161 41.79% 370,874 26.87% 7.34%

the net realizable value method product A101 A204 B216 Total 175,000 14 2,450,000 550,000 1,900,000 48.97% 1,713,918 550,000 2,263,918 135,000 10 1,350,000 125,000 1,225,000 31.57% 1,105,026 125,000 1,230,026 115,000 12 SP Sales Value Cost of further processing Net Reliasble Value of total production 5,180,000 1,300,000 625,000 755,000 Cost Apportionment of Joint Cost $3,500,000 Seperable Cost 19.46% 681,057 625,000 1,300,000 1,306,057 4,800,000 12.94 S 9.11 $ 11.36 Cost per unit SP Sales (tons) Cost of sales Sales Value Gross Profit Gross Profit % 10 135,000 1,230,026 1,350,000 119,974 12 115,000 1,306,057 14 175,000 2,263,918 2,450,000 186,082 7.60% 4,800,000 1,380,000 5,180,000 73,943 5.36% 7.34%

Constant gross-margin percentage NRV method: Final sales value of production Deduct ioint and separable costs Gross margin Gross-margin percentage A101 A204 B216 Total 5,180,000 4,800,000 380,000 7.34% Final Sales Value of production Less Gross Margin 7.34% Total prodution cost Deduct separable costs oint costs allocated 2,450,000 179,730 2,270,270 550,000 1,720,270 1,350,000 99,035 1,250,965 125,000 1,125,965 1,380,000 101,236 1,278,764 625,000 653,764 5180000 380000 4800000 1300000 3500000 Cost per unit SP Sales (tons Cost of sales Sales Value Gross Profit Gross Profit % 12.97 14 175,000 2,270,270 9.27 10 135,000 1,250,965 1350000 99,035 7.34% 11.12 12 115,000 1,278,764 4,800,000 1380000 5,180,000 380,000 7.34% 2450000 179,730 7.34% 101,236 7.34%