(Answered): Sunshine Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point.​ A, B,​ C, and D. Pro…

Sunshine Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point.​ A, B,​ C, and D. Product C is fully processed by the splitoff point. Products​ A, B, and D can individually be further refined into Super​ A, Super​ B, and Super D. In the most recent month​ (December), the output at the splitoff point was as​ follows:

Product​ A,

322 comma 400

gallons
times

Product​ B,

119 comma 600

gallons
times

Product​ C,

52 comma 000

gallons
times

Product​ D,

26 comma 000

gallons

The joint costs of purchasing and processing the crude vegetable oil were

$ 96 comma 000

.

Sunshine

had no beginning or ending inventories. Sales of product C in December were

$ 24 comma 000

.

Products​ A, B, and D were further refined and then sold. Data related to December are as​ follows:

Separable Processing Costs
to Make Super Products Revenues
Super A $249,600 $320,000
Super B 102,400 160,000
Super D 152,000 160,000

Sunshine

had the option of selling products​ A, B, and D at the splitoff point. This alternative would have yielded the following revenues for the December​ production:

times

Product​ A, $ 84 comma 000

times

Product​ B, $ 72 comma 000

times

Product​ D, $ 60 comma 000

Requirements

Compute the​ gross-margin percentage for each product sold in​ December, using the following methods for allocating the

$ 96 comma 000

joint​ costs:
a. Sales value at splitoff
b. ​Physical-measure
c. NRV
2. CouldSunshine
have increased its December operating income by making different decisions about the further processing of products​ A, B, or​ D? Show the effect on operating income of any changes you recommend.

Expert Answer

 

Answer 1.
Allocation of Joint Cost
Under Sales Value at Split off
Product Sales Value at Split off Joint Cost Allocated (Sales Value / Total Sales Value) X $96,000)
A                   84,000                                33,600
B                   72,000                                28,800
C                   24,000                                  9,600
D                   60,000                                24,000
Total                 240,000                                96,000
Allocation of Joint Cost
Under Physical Method
Product Physical Output in gallons Joint Cost Allocated (Physical Output / Total Physical Output) X $96,000)
A                 322,400                                59,520
B                 119,600                                22,080
C                   52,000                                  9,600
D                   26,000                                  4,800
Total                 520,000                                96,000
Allocation of Joint Cost
Under NRV Method
Product Sales Revenue After further processing Sales Revenue at the point of split off Further Processing Costs Net Realizable Value Joint Cost Allocated
Super A                 320,000                                         –               249,600                  70,400                 42,240
Super B                 160,000                                         –               102,400                  57,600                 34,560
C                             –                                24,000                           –                  24,000                 14,400
Super D                 160,000                                         –               152,000                    8,000                   4,800
Total                 640,000                                24,000               504,000               160,000                 96,000
Answer 2.
Product
A B D
Sales Revenue After further Processing          320,000          160,000          160,000
Sales Revenue At the point of split off            84,000            72,000            60,000
Incremental Sales revenue          236,000            88,000          100,000
Further Processing Costs          249,600          102,400          152,000
Profit (Loss) arising due to further processing          (13,600)          (14,400)          (52,000)
Sunshine should not further process any product as it will decrease the operating profit as shown above
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