Reference no: EM132691925

ABC, Inc produces 2 products, Prime(P) and Secondo(S) from a single input. Further processing of product Prime(P) results in a by-product (BP). A summary of production and sales for the year follows:

1. In the joint production process, 510,000 pounds of raw material was processed spending $520,000.
2. 60% of the joint process output was transferred to Division I to produce Prime, and 40 % of the joint process output was transferred to Division II to produce Secondo 
3. Further processing in Division I resulted in 70% of the input pounds becoming Prime and 30% of of the input pounds becoming By-Product BP. The separate processing cost for Prime in Division I was 649,026. 
4. Total packaging costs costs for Prime were $122,094. After Division I processing and packaging , product Prime is salable at $8.00 per pound. 
5. Each pound of By-Product BP can be sold for $0.25 after incurring total selling cost of $5,000. The company accounts for By-Product BP using the NRV method and showing the NRV as a reduction of the cost of good sold of the joint products. 
6. In division II, Secondo was further processed at a separate cost of $387,600. A completed pound of Secondo sells for $4.70 
7. Selling (marketing) costs for Prime and Secondo are respectively $0.80 per pound and $0.15 per pound.Required:

Question a) Allocate the joint cost to products Prime and Secondo, using NRV at split-off.

Question b) There were no beginning Work-in-Process and Finished Goods inventories. Determine the gross margin for ABC, Inc. assuming that

1. 80 percent of Prime and 90 percent of Secondo produced were sold.
2. All By-Product BP that was produces during the year were sold.
3. Joint cost was allocated using the physical measurements.