Clarion Company, a new firm, manufactures two products, J and K, in a common process. The joint costs amount to $80,000 per batch of finished goods. Each batch results in 20,000 liters of output, of which 80% are J and 20% are K.The two products are processed beyond the split-off point, with Clarion incurring the following separable costs: J, $2 per liter; K, $5 per liter. After the additional processing, the selling price of J is $12 per liter, and the selling price of K is $15 per liter.Required:A. Determine the proper allocation of joint costs if the company uses the net-realizable-value method.B. Assume that Clarion sold all of its production of K during the current accounting period. Compute K's sales revenue, cost of goods sold, and gross margin.C. Is the firm's cost-of-goods-sold
figure influenced by the choice of a joint-cost allocation method? Briefly explain.
What will be an ideal response?
| A. | Sales Value of Final Product | Costs Past Split-Off | Net Realizable Value | Relative Proportion | Allocation of Joint Cost |
| J (16,000 × $12) | $192,000 | $32,000 | $160,000 | 160/200 | $64,000 |
| K (4,000 × $15) | 60,000 | 20,000 | 40,000 | 40/200 | 16,000 |
| ? | ? | ? | $200,000 | ? | $80,000 |
| B. | ? |
| Joint Costs | $16,000 |
| Costs beyond split-off | 20,000 |
| Cost of goods sold | $36,000 |
| ? | ? |
| Sales Revenue | $60,000 |
| Cost of goods sold | 36,000 |
| Gross Margin | $24,000 |
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