Question

The Cocoa Nibs Edibles Factory manufactures and distributes chocolate products.

It purchases cocoa beans and processes them into two intermediate​ products: chocolate-powder liquor base and​ milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 1,200 pounds of cocoa beans yields 30 gallons of​ chocolate-powder liquor base and 90 gallons of​ milk-chocolate liquor base. The chocolate-powder liquor base is further processed into chocolate powder. Every 30 gallons of​ chocolate-powder liquor base yield 640 pounds of chocolate powder. The​ milk-chocolate liquor base is further processed into milk chocolate. Every 90 gallons of​ milk-chocolate liquor base yield 1,060 pounds of milk chocolate.

Production and sales data for August 2017 are as follows​ (assume no beginning​ inventory):

- Cocoa beans​ processed, 22,800 pounds times

- Costs of processing cocoa beans to splitoff point​ (including purchase of​ beans), $60,000

	Production	Sales	Selling Price	Separable Processing Costs
Chocolate powder	12,160 pounds	6,400 pounds	$ 8 per pound	$ 38,360
Milk chocolate	20,140 pounds	13,000 pounds	$ 9 per pound	$ 56,384

Edibles Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August 2017, Cocoa Nibs Edibles Factory could have sold the​ chocolate-powder liquor base for $29 a gallon and the​ milk-chocolate liquor base for $87 a gallon.

Question:

1.) Calculate how the joint costs of $60,000 would be allocated between chocolate powder and milk chocolate under the following​ methods:

a. Sales value at splitoff

b. Physical measure​ (gallons)

c. NRV​ (Net Realizable​ Value)

d. Constant​ gross-margin percentage NRV

2. What are the​ gross-margin percentages of chocolate powder and milk chocolate under each of the methods in requirement​ 1?

3. Could Cocoa Nibs Edibles Factory have increased its operating income by a change in its decision to fully process both of its intermediate​ products? Show your computations.

Answer 1

Only 4 parts can be answered at a time