Reference no: EM132750748
Dover Studios shot hundreds of hours of footage that cost $48,000,000. From this footage, the company produced two movies: Star World and Star World: The Sequel. The sequel used better sound effects than the original, was significantly more expensive to produce, and was much better received at the box office.
Dover Studios also generated revenue from admissions paid by numerous movie fans who wanted to tour the movie production set. The company accounted for this revenue as a by-product and used it to reduce joint cost before making allocations to the two feature-length movies.
The following information pertains to the two movies:
Products Total Receipts Separate Costs
Star World $24,000,000 $16,320,000
Star World: The Sequel 139,200,000 98,880,000
Studio tours 1,920,000 1,152,000
Problem a. If joint cost is allocated based on net realizable value, how much of the joint cost is allocated to each movie?
Problem b. Based on your allocations in (a), how much profit was generated by each movie?
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