P15.4 (LO 1, 2, 3), AP Your Uncle Sean has a wool business in Ireland. The company first shears the sheep and then washes the wool, at which point it has wool fiber and crude lanolin. Then the wool fibers are further processed to make yarn, and the crude lanolin is processed further to make lanolin cream. Uncle Sean asks for your help in allocating costs and determining profitability. Here is the information he sent: Joint process cost Further processing cost (wool fiber to yarn) Further processing cost (crude lanolin to cream) Cost $1,000 500 600 Quantity produced (pounds) Wool Fiber 100 Crude Lanolin Wool Blend Yarn Lanolin Cream 40 150 80 Quantity sold (pounds) 150 60 Sales value per pound $3 $5 $10 $13 Required (Round proportions to four decimal places, which is a percentage rounded to two decimal places.) a. If Uncle Sean uses the sales value at split-off method to allocate the joint costs, determine gross margin for each product, recognizing that both products are sold after further processing. b. If Uncle Sean uses the NRV method to allocate joint costs, determine gross margin for each product, again recognizing that both products are sold after further processing. c. Since not all of the lanolin cream is sold, determine the ending inventory cost for the lanolin cream under both the sales value at split-off method and the NRV method. d. Is your uncle making a good business decision to process both of these products further? Show your cal- culations to support your answer. e. Which of the joint cost allocation methods would you recommend to Uncle Sean? Explain your rationale.
P15.4 (LO 1, 2, 3), AP Your Uncle Sean has a wool business in Ireland. The company first shears the sheep and then washes the wool, at which point it has wool fiber and crude lanolin. Then the wool fibers are further processed to make yarn, and the crude lanolin is processed further to make lanolin cream. Uncle Sean asks for your help in allocating costs and determining profitability. Here is the information he sent: Joint process cost Further processing cost (wool fiber to yarn) Further processing cost (crude lanolin to cream) Cost $1,000 500 600 Quantity produced (pounds) Wool Fiber 100 Crude Lanolin Wool Blend Yarn Lanolin Cream 40 150 80 Quantity sold (pounds) 150 60 Sales value per pound $3 $5 $10 $13 Required (Round proportions to four decimal places, which is a percentage rounded to two decimal places.) a. If Uncle Sean uses the sales value at split-off method to allocate the joint costs, determine gross margin for each product, recognizing that both products are sold after further processing. b. If Uncle Sean uses the NRV method to allocate joint costs, determine gross margin for each product, again recognizing that both products are sold after further processing. c. Since not all of the lanolin cream is sold, determine the ending inventory cost for the lanolin cream under both the sales value at split-off method and the NRV method. d. Is your uncle making a good business decision to process both of these products further? Show your cal- culations to support your answer. e. Which of the joint cost allocation methods would you recommend to Uncle Sean? Explain your rationale.
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Transcribed Image Text:P15.4 (LO 1, 2, 3), AP Your Uncle Sean has a wool business in Ireland. The company first shears the sheep
and then washes the wool, at which point it has wool fiber and crude lanolin. Then the wool fibers are further
processed to make yarn, and the crude lanolin is processed further to make lanolin cream. Uncle Sean asks for
your help in allocating costs and determining profitability. Here is the information he sent:
Joint process cost
Further processing cost (wool fiber to yarn)
Further processing cost (crude lanolin to cream)
Cost
$1,000
500
600
Quantity produced (pounds)
Wool Fiber
100
Crude Lanolin
Wool
Blend Yarn
Lanolin Cream
40
150
80
Quantity sold (pounds)
150
60
Sales value per pound
$3
$5
$10
$13
Required
(Round proportions to four decimal places, which is a percentage rounded to two decimal places.)
a. If Uncle Sean uses the sales value at split-off method to allocate the joint costs, determine gross margin for
each product, recognizing that both products are sold after further processing.
b. If Uncle Sean uses the NRV method to allocate joint costs, determine gross margin for each product, again
recognizing that both products are sold after further processing.
c. Since not all of the lanolin cream is sold, determine the ending inventory cost for the lanolin cream under
both the sales value at split-off method and the NRV method.
d. Is your uncle making a good business decision to process both of these products further? Show your cal-
culations to support your answer.
e. Which of the joint cost allocation methods would you recommend to Uncle Sean? Explain your rationale.
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