Question

Instant Foods produces two types of microwavable products—beef-flavoured ramen and shrimp-flavoured ramen. The two products share common inputs such as noodle and spices.

The production of ramen results in a waste product referred to as stock, which Instant dumps at negligible costs in a local drainage area.

In June 2012, the following data were reported for the production and sales of beef-flavoured and shrimp-flavoured ramen:

Joint Costs (costs of noodles,spices and other inputs and processing to spiltoff point)

Joint Costs

                                                                                                                                                $240000                                                                                                                                               

                                                                                                                Beef Ramen                       Shrimp Ramen

Beginning Inventory (tons)                                                                 0                                                       0

Production (tons)                                                                            10000                                                    20000

Sales (tons)                                                                                        10000                                                    20000

Selling Price per ton                                                                        $10                                                         $20

Due to the popularity of its microwavable products, Instant decides to add a new line of products that targets dieters. These new products are produced by adding a special ingredient to dilute the original ramen and are able to be sold under the names Special B and Special S, respectively. The following is the monthly data for all the products:

                                                                                Joint Costs                          Speical B                             Speical S

Joint Cost (costs of noodles,spices and $2400000

other inputs and processing to spiltoff point)

Separable costs of processing 10000 tons

Of Beef Ramen into 12000 tons of Special B                                         $48000

Separable costs of processing 10000 tons

Of Beef Ramen into 12000 tons of Special S                                                                                          $168000

                                                                                Beef Ramen       Shrimp Ramen       Special B             Special S

Beginning Inventory (tons)                                          0                              0                              0                              0

Production (tons)                                                  10000                      20000 12000                       24000

Transfer for further processing (tons) 10000                 20000

Sales (tons)                                                                                                                   12000                   24000

Selling Price per ton                                              $10                       $15 $18                    $25          

                                                               

Required:

Calculate Instant’s gross-margin percentage for Special B and Special S when joint costs are allocated using the following:

a. sales value at splittoff method

b. physical measure method

c. not realizable value meth

Answer 1

1
Sales value at split off method
	Special B	Special S	Total
Sales value of total production at split off point	100000	300000	400000
	(10000*10)	(20000*15)
Percentage (weight)	25%	75%	100%
Joint costs allocated 240000*20%,80%	60000	180000	240000
	Special B	Special S	Total
Revenues	216000	600000	816000
	12000*18	24000*25
Cost of goods sold
Joint costs allocated	60000	180000	240000
Separable costs	48000	168000	216000
COGS	108000	348000	456000
Gross margin	108000	252000	360000
Gross margin %	50%	42%	44%
b
Physical measure method	Special B	Special S	Total
Physical measure of total production	10000	20000	30000
Percentage (weight)	33%	67%	100%
Joint costs allocated	80000	160000	240000
	Special B	Special S	Total
Revenues	216000	600000	816000
	12000*18	24000*25
COGS:
Joint costs allocated	80000	160000	240000
Separable costs	48000	168000	216000
COGS	128000	328000	456000
Gross margin	88000	272000	360000
Gross margin %	24%	76%	100%
c
NRV method	Special B	Special S	Total
Final sales of production	216000	600000	816000
	12000*18	24000*25
Less: Separable cost	48000	168000	216000
NRV at split off	168000	432000	600000
Percentage (weight)	28%	72%	100%
Joint costs allocated	67200	172800	240000
	Special B	Special S	Total
Revenues	216000	600000	816000
	12000*18	24000*25
COGS:
Joint costs allocated	67200	172800	240000
Separable costs	48000	168000	216000
COGS	115200	340800	456000
Gross margin	100800	259200	360000
Gross margin %	28%	72%	100%