91影视

The Tempura Spirits Company produces two products-methanol (wood alcohol) and turpentine- by a joint process. Joint costs amount to \(\$ 124,000\) per batch of output. Each batch totals 9,500 gallons: \(25 \%\) methanol and \(75 \%\) turpentine. Both products are processed further without gain or loss in volume. Separable processing costs are methanol, \(\$ 4\) per gallon, and turpentine, \(\$ 2\) per gallon. Methanol sells for \(\$ 22\) per gallon. Turpentine sells for \(\$ 16\) per gallon. 1\. How much of the joint costs per batch will be allocated to methanol and to turpentine, assuming that joint costs are allocated based on the number of gallons at splitoff point? 2\. If joint costs are allocated on an NRV basis, how much of the joint costs will be allocated to methanol and to turpentine? 3\. Prepare product-line income statements per batch for requirements 1 and 2 . Assume no beginning or ending inventories. 4\. The company has discovered an additional process by which the methanol (wood alcohol) can be made into a pleasant-tasting alcoholic beverage. The selling price of this beverage would be \(\$ 55\) a galIon. Additional processing would increase separable costs \(\$ 12\) per gallon (in addition to the \(\$ 4\) per \(g\) alIon separable cost required to yield methanol). The company would have to pay excise taxes of \(20 \%\) on the selling price of the beverage. Assuming no other changes in cost, what is the joint cost applicable to the wood alcohol (using the NRV method)? Should the company produce the alcoholic beverage? Show your computations.

Step by step solution

01

Determine the proportions of the products in the batch

Given that each batch consists of 9,500 gallons total and the proportion of methanol is 25% and turpentine is 75%, we need to find the respective gallons of both products. Methanol gallons: \(0.25 * 9500 = 2375\) Turpentine gallons: \(0.75 * 9500 = 7125\)

02

Allocate joint costs based on the number of gallons at the split-off point

Given the joint costs amount to $124,000 per batch, we can allocate the joint costs to methanol and turpentine using the proportion of gallons in each product. Methanol Joint costs: \(\frac{2375}{9500} * 124000 = 30625\) Turpentine Joint costs: \(\frac{7125}{9500} * 124000 = 93375\)

03

Calculate the net realizable value (NRV) for both products

Let's find out the NRV for both methanol and turpentine. NRV is the selling price of the product minus its separable processing cost. Methanol NRV: \(\$ 22 - \$ 4 = \$ 18\) per gallon Turpentine NRV: \(\$ 16 - \$ 2 = \$ 14\) per gallon Now, let's calculate the total NRV for each product by multiplying the NRV per gallon with the total gallons of each product. Methanol Total NRV: \(18 * 2375 = 42750\) Turpentine Total NRV: \(14 * 7125 = 99850\)

04

Allocate joint costs based on the NRV basis

Now, let's allocate the joint costs based on the NRV for methanol and turpentine. Methanol joint costs (NRV basis): \(\frac{42750}{142600} * 124000 = 37062.5\) Turpentine joint costs (NRV basis): \(\frac{99850}{142600} * 124000 = 86937.5\)

05

Prepare product-line income statements per batch for requirements 1 and 2

Now, let's prepare the income statements for both methanol and turpentine, assuming no beginning or ending inventories. 鈹屸攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹� 鈹� 鈹� 鈹俁equirement 1 鈹俁equirement 2 鈹� 鈹溾攢鈹尖攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹尖攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹尖攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹� 鈹侻ethanol Sales Revenue鈹俓$ 22 * 2375 = 52250鈹俓$ 22 * 2375 = 52250鈹� 鈹侻ethanol Joint Costs 鈹�30625 鈹�37062.5 鈹� 鈹侻ethanol Separable Costs鈹�4 * 2375 = 9500鈹�4 * 2375 = 9500 鈹� 鈹侻ethanol Income 鈹俓$ 52,250 - 30,625 - 9,500 = 12,125 鈹俓$ 52,250 - 37,062.5 - 9,500 = 5,687.5鈹� 鈹溾攢鈹尖攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹尖攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹尖攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹� 鈹俆urpentine Sales Revenue鈹俓$ 16 * 7125 = 114000鈹俓$ 16 * 7125 = 114000鈹� 鈹俆urpentine Joint Costs 鈹�93375 鈹�86937.5 鈹� 鈹俆urpentine Separable Costs鈹�2 * 7125 = 14250鈹�2 * 7125 = 14250鈹� 鈹俆urpentine Income 鈹俓$ 114,000 - 93,375 - 14,250 = 6,375鈹俓$ 114,000 - 86,937.5 - 14,250 = 12,812.5鈹� 鈹斺攢鈹�鈹粹攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹粹攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹粹攢鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�鈹�

06

Evaluate the profitability of producing the alcoholic beverage

Given the selling price of the alcoholic beverage is \(55 per gallon and the additional separable cost is \)12 per gallon (in addition to the $4 per gallon), along with the excise tax of 20%. First, calculate the selling price after deducting excise tax: \(\$ 55 - (0.2 * 55) = \$ 44\) Now, let's calculate the profit per gallon for the alcoholic beverage: \(\$ 44 - (4 + 12) = \$ 28\) Now, let's calculate the new total NRV for methanol when converted to alcoholic beverage: \(28 * 2375 = 66500\). Now, we can allocate the joint costs based on the new NRV basis. Methanol joint costs (new NRV basis): \(\frac{66500}{163350} * 124000 = 50246.6\) Comparing the profit of methanol (\$5,687.5) with the alcoholic beverage (\$28 * 2375 - 50246.6 = \$ 16453.4), producing the alcoholic beverage would be more profitable, and therefore, the company should produce the alcoholic beverage.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Joint Cost Allocation

Understanding joint cost allocation is crucial in cost accounting, particularly in industries where multiple products are derived from a single production process. Joint costs refer to the expenses incurred up to the split-off point, where the products are still together and indistinguishable. The challenge for accountants is to allocate these costs among the end-products in a rational and systematic way.

One common method is to allocate joint costs based on the number of gallons at the split-off point, as our exercise demonstrates. This method is intuitive and simple, as it assigns costs in proportion to the quantity of each product. However, simplicity does not always mean accuracy or fairness, as it does not take into account the potential value or profitability of each product.

For a more nuanced approach, the Net Realizable Value (NRV) method is often employed, which considers the final selling price minus any further processing costs. This method better reflects the earning potential of each product and is accounting best practice for joint cost allocation in many circumstances.

Net Realizable Value (NRV)

The Net Realizable Value (NRV) method is a key concept in cost accounting that resolves many of the issues associated with simpler joint cost allocation methods. NRV is calculated by deducting the separable processing costs from the final selling price of products. This reflects the actual financial contribution of each product to the overall profitability of the company.

In our original exercise, NRV is used as a basis to allocate joint costs between methanol and turpentine. By focusing on NRV, the allocation recognizes the final economic value of each product. Companies often prefer this method over volume-based allocation, as it aligns cost assignment with the value added by further processing and the market conditions impacting sales prices.

Product-Line Income Statements

In cost accounting, product-line income statements are essential for evaluating the profitability of individual products. Unlike traditional income statements that summarize the financial performance of a company as a whole, product-line income statements isolate revenue and costs associated with just one product line.

These statements show sales revenue, joint costs, separable costs, and the resulting income for each product. As seen in the exercise solution, this granular view helps in making informed decisions about the viability and potential adjustments needed for each product. When joint costs are allocated based on both volume and NRV methods, the derived income statements reveal the impact of the allocation method on reported product profits.

Separable Processing Costs

Separable processing costs are expenses that are incurred after the split-off point, where joint products become distinct and are processed further. These costs are directly attributable to each individual product. In our exercise, methanol and turpentine require additional processing costs of \(4 and \)2 per gallon, respectively.

When we consider improvements such as converting methanol into an alcoholic beverage, these separable costs change significantly. The additional costs, including new processing and taxes, impact the NRV of the product and therefore how joint costs are allocated. As the exercise illustrates, factoring these additional costs is essential when determining the profitability of new product enhancements and whether they should be pursued. It鈥檚 this level of detail that helps managers make strategic decisions about product lines and resource allocation.