Alternative methods of joint cost allocation, ending inventories.
The Klein Company operates
a simple chemical process to convert a single material into three separate items, referred to here as X,
Y, and Z. All three end products are separated simultaneously at a single splitoff point.
Products X and Y are ready for sale immediately upon splitoff without further processing or any other
additional costs. Product Z, however, is processed further before being sold. There is no available
price for Z at the splitoff point.
The selling prices quoted here are expected to remain the same in the coming year. During the year,
the selling prices of the items and the total amounts sold were
X—120 tons sold for $1,500 per ton.
Y—340 tons sold for $1,000 per ton.
Z—475 tons sold for $700 per ton.
The total joint manufacturing costs for the year were $400,000. Klein spent an additional $200,000 to
finish product Z.
There were no beginning inventories of X, Y, or Z. At the end of the year, the following inventories of
completed units were on hand: X, 180 tons; Y, 60 tons; Z, 25 tons. There was no beginning or ending
Compute the cost of inventories of X, Y, and Z for the purposes of the statement of financial position
the cost of goods sold for operating income statement purposes as of December 31, using the
joint cost allocation methods:
Constant gross margin percentage NRV method
Compare the gross margin percentages for X, Y, and Z using the two methods given in requirement