Figure 7-7 Eden Company manufactures two products, Brights and Dulls, from a joint process.A production run costs $50,000 and results in 250 units of Brights and 1,000 units of Dulls.Both products must be processed past the split-off point, incurring separable costs for Brights of $60 per unit and $40 per unit for Dulls.The market price is $250 for Brights and $200 for Dulls.
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Refer to Figure 7-7.What is the amount of joint costs allocated to Dulls using the constant gross margin percentage method?

Question

Quizplus · Accepted Answer

To use the constant gross margin percentage method, we need to first calculate the total sales value for both products, which is:
(250 units of Brights x $250) + (1,000 units of Dulls x $200) = $425,000

The next step is to calculate the gross margin percentage for one of the products. Let's use Brights:
Gross margin per unit of Brights = $250 - $60 = $190
Gross margin percentage for Brights = $190 ÷ $250 = 0.76 or 76%

We can now allocate the joint costs based on the proportion of the total sales value for each product, using the gross margin percentage for one of the products. The allocation for Dulls is:
Total sales value for Dulls = 1,000 units x $200 = $200,000
Allocation to Dulls = $200,000 x (1 - 0.76) = $40,000

Therefore, the answer is B, $40,000.

Figure 7-7 Eden Company Manufactures Two Products, Brights and Dulls