Red Hot manufactures a variety of red products. Each product has a market and can be sold as-is or processed further. Four of the products use a joint process costing $25,000. Red Hots can be sold for $2 per pound or processed further for $21,000 and sold for $2.50 per pound. Smokin Reds can be sold for $3.50 per pound or processed further for $18,500 and sold for $5 per pound. Little Reds can be sold for $5 per pound or processed further for $23,000 and sold for $6 per pound. Red Peppers can be sold for $8 per pound or processed further for $15,000 and sold for $10.50 per pound. The following table shows how many pounds were produced of each product. Even if the products are processed further, the pounds produced will remain the same. Instructions:
a. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at split-off method and calculate the gross margin for each product.
b. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at physical quantities method and calculate the gross margin for each product.
c. Red Hot plans to process all of products further. Allocate the joint costs using the sales at NRV method and calculate the gross margin for each product.
d. If Red Hots does not plan to process any of the products further and the current sales value per pound is accurate, which method should the company use to allocate joint costs?
e. If Red Hots plans to produce all the products further, which method should the company use to allocate joint costs?
f. Which product or products should the company process further and which product or products should the company sell as-is? Be sure to justify your answer with calculations.
g. If the company takes your suggestions in part f, calculate the new gross margin of the company if the company uses the NRV method to allocate joint costs, and only the product or products recommended in part f are processed further
h. What is the overall effect on gross margin by only processing further the products identified in part f versus not processing any of the products further
i. What is the overall effect on gross margin by only processing further the products identified in part f versus processing all of the products further?

Question

Red Hot manufactures a variety of red products. Each product has a market and can be sold as-is or processed further. Four of the products use a joint process costing $25,000. Red Hots can be sold for $2 per pound or processed further for $21,000 and sold for $2.50 per pound. Smokin Reds can be sold for $3.50 per pound or processed further for $18,500 and sold for $5 per pound. Little Reds can be sold for $5 per pound or processed further for $23,000 and sold for $6 per pound. Red Peppers can be sold for $8 per pound or processed further for $15,000 and sold for $10.50 per pound. The following table shows how many pounds were produced of each product. Even if the products are processed further, the pounds produced will remain the same.  Instructions: 
a. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at split-off method and calculate the gross margin for each product.
b. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at physical quantities method and calculate the gross margin for each product.
c. Red Hot plans to process all of products further. Allocate the joint costs using the sales at NRV method and calculate the gross margin for each product.
d. If Red Hots does not plan to process any of the products further and the current sales value per pound is accurate, which method should the company use to allocate joint costs?
e. If Red Hots plans to produce all the products further, which method should the company use to allocate joint costs? 
f. Which product or products should the company process further and which product or products should the company sell as-is? Be sure to justify your answer with calculations. 
g. If the company takes your suggestions in part f, calculate the new gross margin of the company if the company uses the NRV method to allocate joint costs, and only the product or products recommended in part f are processed further
h. What is the overall effect on gross margin by only processing further the products identified in part f versus not processing any of the products further
i. What is the overall effect on gross margin by only processing further the products identified in part f versus processing all of the products further?

Quizplus · Accepted Answer

The Answer of Red Hot manufactures a variety of red products. Each product has a market and can be sold as-is or processed further. Four of the products use a joint process costing $25,000. Red Hots can be sold for $2 per pound or processed further for $21,000 and sold for $2.50 per pound. Smokin Reds can be sold for $3.50 per pound or processed further for $18,500 and sold for $5 per pound. Little Reds can be sold for $5 per pound or processed further for $23,000 and sold for $6 per pound. Red Peppers can be sold for $8 per pound or processed further for $15,000 and sold for $10.50 per pound. The following table shows how many pounds were produced of each product. Even if the products are processed further, the pounds produced will remain the same.  Instructions: 
a. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at split-off method and calculate the gross margin for each product.
b. Red Hot does not plan to process any of the products further. Allocate the joint costs using the sales at physical quantities method and calculate the gross margin for each product.
c. Red Hot plans to process all of products further. Allocate the joint costs using the sales at NRV method and calculate the gross margin for each product.
d. If Red Hots does not plan to process any of the products further and the current sales value per pound is accurate, which method should the company use to allocate joint costs?
e. If Red Hots plans to produce all the products further, which method should the company use to allocate joint costs? 
f. Which product or products should the company process further and which product or products should the company sell as-is? Be sure to justify your answer with calculations. 
g. If the company takes your suggestions in part f, calculate the new gross margin of the company if the company uses the NRV method to allocate joint costs, and only the product or products recommended in part f are processed further
h. What is the overall effect on gross margin by only processing further the products identified in part f versus not processing any of the products further
i. What is the overall effect on gross margin by only processing further the products identified in part f versus processing all of the products further?

Red Hot Manufactures a Variety of Red Products