Figure 6-7
Suppose that a concrete manufacturer produces four grades of concrete totaling 500,000 cubic yards as follows at a joint cost of £2,000,000: $$\begin{array} { c c c }
\text { Grade } & \text { Cubic Yards } & \text { Sales Value } \
\text { A } & 75,000 & £ 375,000 \
\text { B } & 200,000 & 1,200,000 \
\text { C } & 100,000 & 700,000 \
\text { D } & 125,000 & 850,000
\end{array}$$
-Refer to Figure 6-7. What is the gross profit of Grade D if the constant gross margin percentage method is used?

Question

Figure 6-7
Suppose that a concrete manufacturer produces four grades of concrete totaling 500,000 cubic yards as follows at a joint cost of £2,000,000: $$\begin{array} { c c c } 
\text { Grade } & \text { Cubic Yards } & \text { Sales Value } \
\text { A } & 75,000 & £ 375,000 \
\text { B } & 200,000 & 1,200,000 \
\text { C } & 100,000 & 700,000 \
\text { D } & 125,000 & 850,000
\end{array}$$
-Refer to Figure 6-7. What is the gross profit of Grade D if the constant gross margin percentage method is used?

Quizplus · Accepted Answer

The constant gross margin percentage method allocates joint costs based on the overall gross margin percentage. First, calculate the total sales value: £375,000 + £1,200,000 + £700,000 + £850,000 = £3,125,000. The total joint cost is £2,000,000, so the total gross profit is £3,125,000 - £2,000,000 = £1,125,000. The gross margin percentage is £1,125,000 / £3,125,000 = 36%. The sales value of Grade D is £850,000, so its gross profit is 36% of £850,000 = £306,000.

Figure 6-7 Suppose That a Concrete Manufacturer Produces Four Grades

Figure 6-7
Suppose That a Concrete Manufacturer Produces Four Grades