Reference no: EM132967887

ABC Ltd. produces three products, namely Red, Green and Yellow. During July 2021, the company processed raw materials in a joint process costing $550,000 to produce 15,000 liters of Alpha, 9,000kg of Beta and 750kg of Yellow. Alpha was further processed at a cost of $150,000 to produce 15,000 liters of Red. Beta was further processed at a cost of $45,000 to produce 9,000kg of Green.

• During July 2021, ABC Ltd. sold 14,000 liters of Red for $28 per liter and 8,500kg of Green for $45 per kilogram and no Yellow. There was no inventory of any of the products on June 30, 2021.
• ABC Ltd. allocates joint costs to the final products based on net realizable value (NRV) at the split point. Yellow is considered a byproduct and is accounted for using the sales method. Yellow normally sells for $10 per kg. There is a market for Alpha, but Beta cannot be sold without being processed further.

Problem 1: Calculate the product margin (gross profit) ABC Ltd. recorded in July 2021 for Red, Green and Yellow individually.

Problem 2: Assume ABC Ltd. used the production method to account for byproducts. Would total gross profit for July 2021 have been more, less or the same as compared to the sales method? Briefly explain why. No calculations are required.

Problem 3: On August 1, 2021, a company offers ABC Ltd. $17 per liter for the entire Alpha it will produce in August. Based on the July 2021 information, should ABC Ltd. accept the offer or not? Support your answer with calculations and explanations.