# (Question and Answer): Sunshine Oil Company buys crude vegetable oil. Refining this oil results in four products at the splitoff point.​ A, B,​ C, and D. Pro

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 as​ follows:

Product​ A,

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322 comma 400

 gallons times

Product​ B,

119 comma 600

 gallons times

Product​ C,

52 comma 000

 gallons times

Product​ D,

26 comma 000

 gallons

The joint costs of purchasing and processing the crude vegetable oil were

\$ 96 comma 000

.

Sunshine

had no beginning or ending inventories. Sales of product C in December were

\$ 24 comma 000

.

Products​ A, B, and D were further refined and then sold. Data related to December are as​ follows:

 Separable Processing Costs to Make Super Products Revenues Super A \$249,600 \$320,000 Super B 102,400 160,000 Super D 152,000 160,000

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:

 times

Product​ A, \$ 84 comma 000

 times

Product​ B, \$ 72 comma 000

 times

Product​ D, \$ 60 comma 000

Requirements

Compute the​ gross-margin percentage for each product sold in​ December, using the following methods for allocating the

\$ 96 comma 000

joint​ costs:
 a. Sales value at splitoff b. ​Physical-measure c. NRV
2. CouldSunshine
 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. Allocation of Joint Cost Under Sales Value at Split off Product Sales Value at Split off Joint Cost Allocated (Sales Value / Total Sales Value) X \$96,000) A 84,000 33,600 B 72,000 28,800 C 24,000 9,600 D 60,000 24,000 Total 240,000 96,000 Allocation of Joint Cost Under Physical Method Product Physical Output in gallons Joint Cost Allocated (Physical Output / Total Physical Output) X \$96,000) A 322,400 59,520 B 119,600 22,080 C 52,000 9,600 D 26,000 4,800 Total 520,000 96,000 Allocation of Joint Cost Under NRV Method Product Sales Revenue After further processing Sales Revenue at the point of split off Further Processing Costs Net Realizable Value Joint Cost Allocated Super A 320,000 – 249,600 70,400 42,240 Super B 160,000 – 102,400 57,600 34,560 C – 24,000 – 24,000 14,400 Super D 160,000 – 152,000 8,000 4,800 Total 640,000 24,000 504,000 160,000 96,000
 Answer 2. Product A B D Sales Revenue After further Processing 320,000 160,000 160,000 Sales Revenue At the point of split off 84,000 72,000 60,000 Incremental Sales revenue 236,000 88,000 100,000 Further Processing Costs 249,600 102,400 152,000 Profit (Loss) arising due to further processing (13,600) (14,400) (52,000) Sunshine should not further process any product as it will decrease the operating profit as shown above

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