Cost Accounting (14th Edition)

594 CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS
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
1
2
3
4
5
A
B
C
D
Allocation of Joint Costs Using Sales Value at Splitoff Method Caustic Soda PVC / Chlorine Total
Sales value of total production at splitoff point
( 1,200 tons × $50 per ton; 800 × $75 per ton)
$60,000 $60,000 $ 120,000
Weighting ($60,000 ÷ $120,000; $60,000 ÷ $120,000)
J oint costs allocated (0.50 × $100,000; 0.50 × $100,000)
0.50
$50,000
0.50
$50,000 $ 100,000
1b. Physical-measure method
A
B
C
D
8 Allocation of Joint Costs Using Physical-Measure Method Caustic Soda PVC / Chlorine Total
9 Physical measure of total production (tons) 1,200 800 2,000
10 Weighting (1,200 tons ÷ 2,000 tons; 800 tons ÷ 2,000 tons) 0.60
0.40
11 Joint cost allocated (0.60 × $100,000; 0.40 × $100,000) $60,000 $40,000 $100,000
2. Net realizable value (NRV) method
A
B
C D
14 Allocation of Joint Costs Using Net Realizable Value Method Caustic Soda PVC Total
15 Final sales value of total production during accounting period
16 (1,200 tons × $50 per ton; 500 tons × $200 per ton)
$ 60,000 $100,000 $160,000
17 Deduct separable costs to complete and sell
0 20,000 20,000
18 Net realizable value at splitoff point $ 60,000 $ 80,000 $ 140,000
19 Weighting ($60,000 ÷ $140,000; $80,000 ÷ $140,000)
3/7
4/7
20 J oint costs allocated (3/7 × $100,000; 4/7 × $100,000)
$ 42,857 $ 57,143 $ 100,000
3a. Gross-margin percentage of caustic soda
A
Sales Value
at Splitoff Physical
23
24 R evenues (1,200 tons × $50 per ton)
Caustic Soda
Point
$ 60,000
Measure
$ 60,000
NRV
$ 60,000
25 C ost of goods sold (joint costs)
50,000 60,000 42,857
26 Gross margin $ 10,000 $ 0 $ 17,143
27 Gross margin percentage ($10,000 ÷ $60,000; $0 ÷ $60,000; $17,143 ÷ $60,000) 16.67% 0.00% 28.57%
B
C
D