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    Analytical Accounting - A6 - 2019/2020: Joint Costs

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    Tata Saja
    The document describes a company, IC, that processes salt into caustic soda and chlorine. It incurred $100,000 in joint costs to produce 1,200 tons of caustic soda and 800 tons of chlorine in July 2012. The chlorine was further processed into 500 tons of PVC. The joint costs were allocated between caustic soda and PVC using three methods: 1) the sales value at splitoff method allocated $50,000 to each, 2) the physical-measure method allocated $60,000 to caustic soda and $40,000 to PVC, and 3) the NRV method allocated $42,857 to caustic soda and $57,143 to PVC

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    Analytical Accounting - A6 - 2019/2020: Joint Costs

    Uploaded by

    Tata Saja
    1K views3 pages
    The document describes a company, IC, that processes salt into caustic soda and chlorine. It incurred $100,000 in joint costs to produce 1,200 tons of caustic soda and 800 tons of chlorine in July 2012. The chlorine was further processed into 500 tons of PVC. The joint costs were allocated between caustic soda and PVC using three methods: 1) the sales value at splitoff method allocated $50,000 to each, 2) the physical-measure method allocated $60,000 to caustic soda and $40,000 to PVC, and 3) the NRV method allocated $42,857 to caustic soda and $57,143 to PVC

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    20191205 Joint Production Extra.pdf

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    The document describes a company, IC, that processes salt into caustic soda and chlorine. It incurred $100,000 in joint costs to produce 1,200 tons of caustic soda and 800 tons of chlorine in July 2012. The chlorine was further processed into 500 tons of PVC. The joint costs were allocated between caustic soda and PVC using three methods: 1) the sales value at splitoff method allocated $50,000 to each, 2) the physical-measure method allocated $60,000 to caustic soda and $40,000 to PVC, and 3) the NRV method allocated $42,857 to caustic soda and $57,143 to PVC

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    1K views3 pages

    Analytical Accounting - A6 - 2019/2020: Joint Costs

    Uploaded by

    Tata Saja
    The document describes a company, IC, that processes salt into caustic soda and chlorine. It incurred $100,000 in joint costs to produce 1,200 tons of caustic soda and 800 tons of chlorine in July 2012. The chlorine was further processed into 500 tons of PVC. The joint costs were allocated between caustic soda and PVC using three methods: 1) the sales value at splitoff method allocated $50,000 to each, 2) the physical-measure method allocated $60,000 to caustic soda and $40,000 to PVC, and 3) the NRV method allocated $42,857 to caustic soda and $57,143 to PVC

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 3

    ANALYTICAL ACCOUNTING – A6 – 2019/2020

    JOINT COSTS

    Inorganic Chemicals (IC) processes salt into various industrial products. In July 2012, IC incurred joint costs of
    $100,000 to purchase salt and convert it into two products: caustic soda and chlorine. Although there is an
    active outside market for chlorine, IC processes all 800 tons of chlorine it produces into 500 tons of PVC
    (polyvinyl chloride), which is then sold. There were no beginning or ending inventories of salt, caustic soda,
    chlorine, or PVC in July. Information for July 2012 production and sales follows:

    JOINT COSTS PVC


    Joint costs (cost of salt and processing to splitoff point) $ 100,000
    Separable costs of processing 800 tons chlorine into 500 tons PVC $ 20,000

    Caustic soda Chlorine PVC


    Beginning inventory (tons) 0 0 0
    Production (tons) 1,200 800 500
    Transfer for further processing (tons) 800
    Ending inventory (tons) 0 0 0
    Sales (tons) 1,200 500
    Selling price per ton in active outside market (for
    $ 75
    products not actually sold)
    Selling price per ton for products sold $ 50 $ 200

    Instructions

    1. Allocate the joint costs of $100,000 between caustic soda and PVC under (a) the sales Required value
    at splitoff method and (b) the physical-measure method.

    2. Allocate the joint costs of $100,000 between caustic soda and PVC under the NRV method.

    3. Under the three allocation methods in requirements 1 and 2, what is the gross-margin percentage of
    (a) caustic soda and (b) PVC?

    4. Lifetime Swimming Pool Products offers to purchase 800 tons of chlorine in August 2012 at $75 per
    ton. Assume all other production and sales data are the same for August as they were for July. This
    sale of chlorine to Lifetime would mean that no PVC would be produced by IC in August. How would
    accepting this offer affect IC’s August 2012 operating income?
    1/3
    Solution

    The following picture provide a visual illustration of the main facts in this problem.

    Note that caustic soda is sold as is while chlorine, despite having a market value at splitoff, is sold only in
    processed form as PVC. The goal is to allocate the joint costs of $100,000 to the final products—caustic soda
    and PVC. However, since PVC exists only in the form of chlorine at the splitoff point, we use chlorine’s sales
    value and physical measure as the basis for allocating joint costs to PVC under the sales value at splitoff and
    physical measure at splitoff methods. Detailed calculations are shown next.

    1a.- Sales value at splitoff method

    Allocation of Joint costs Using Sales Value at


    Caustic Soda PVC/Chlorine Total
    Splitoff Method
    Sales value of total production at splitoff point $ 60,000 $ 60,000 $ 120,000
    Weighting 0.50 0.50
    Joint costs allocated $ 50,000 $ 50,000 $ 100,000

    1b.- Physical-measure method

    Allocation of Joint costs Using Physical-


    Caustic Soda PVC/Chlorine Total
    Measure Method
    Physical measure of total production (tons) 1,200 800 2,000
    Weighting 0.60 0.40
    Joint costs allocated $ 60,000 $ 40,000 $ 100,000

    2/3
    2.- Net Realizable Value (NRV) method

    Allocation of Joint costs Using Net Realizable


    Caustic Soda PVC/Chlorine Total
    Value Method
    Final sales value of total production during
    $ 60,000 $ 100,000 $ 160,000
    accounting period
    Deduct separable costs to complete and sell $0 $ 20,000 $ 20,000
    Net realizable value at splitoff point $ 60,000 $ 80,000 $ 140,000
    3 4
    Weighting
    7 7
    Joint costs allocated $ 42,857 $ 57,143 $ 100,000

    3a.- Gross-margin percentage of caustic soda

    Sales Value at Physical


    Caustic soda NRV
    Splitoff point Meadure
    Revenues $ 60,000 $ 60,000 $ 60,000
    Cost of goods sold (joint costs) $ 50,000 $ 60,000 $ 42,857
    Gross margin $ 10,000 $0 $ 17,143
    Gross margin percentage 16.67% 0.00% 28.57%

    3b.- Gross-margin percentage of PVC

    Sales Value at Physical


    PVC NRV
    Splitoff point Meadure
    Revenues $ 100,000 $ 100,000 $ 100,000
    Cost of goods sold (joint costs)
    Joint costs $ 50,000 $ 40,000 $ 57,143
    Separable costs $ 20,000 $ 20,000 $ 20,000
    Cost of goods sold $ 70,000 $ 60,000 $ 77,143
    Gross margin $ 30,000 $ 40,000 $ 22,857
    Gross margin percentage 30.00% 40.00% 22.86%

    4.- Sale of chlorine versus processing into PVC

    Incremental revenue from processing 800 tons of chlorine into 500 tons of PVC $ 40,000
    Incremental cost of processing 800 tons of chlorine into 500 tons of PVC $ 20,000
    Incremental operating income from further processing $ 20,000

    If IC sells 800 tons of chlorine to Lifetime Swimming Pool Products instead of further processing it into PVC,
    its August 2012 operating income will be reduced by $ 20,000.

    3/3

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