Question

The 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:

Product A, 300,000 litres.

■ Product B, 100,000 litres.

■ Product C, 50,000 litres.

■ Product D, 50,000 litres.

The joint costs of purchasing and processing the crude vegetable oil were $100,000. Sunshine had no beginning or ending inventories. Sales of product C in December were $50,000. Products A, B, and D were further refined and then sold. Data related to December are:

Separable Processing Costs to Make Super Products Sales

Super A $200,000 $300,000

Super B.   80,000 100,000

Super D 90,000   120,000

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:

■ Product A, $50,000.

■ Product B, $30,000.

■ Product D, $70,000.

Required 1. Compute the gross margin percentage for each product sold in December, using the following methods for allocating the $100,000 joint costs:

a. Sales value at splitoff.

b. Physical measure.

c. NRV.

2. Could Sunshine 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.

Answer 1