Douglas Company, a New Firm, Manufactures Two Products, J and K

question 26

Essay

Douglas 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 Douglas 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 Douglas 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.

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Definitions:

Expected Profit Rate

The anticipated return on investment, calculated based on potential revenues and costs.

Business Loans

Credit facilities extended to businesses for various purposes, including capital expenditure, operational costs, and expansion activities, typically with repayment terms.

Disposable Income

The sum of money households can spend or save once income taxes have been deducted.

Saving

The process of setting aside a portion of current income for future use, typically to achieve long-term financial goals or provide a safety net.