Assignment -
Soap Company manufactures three soap products, Super Soap, Luxury Clean and Gel from a joint process. The joint manufacturing costs incurred are $420,000 for a standard production run that generates 180,000 units of Super Soap, 120,000 units of Luxury Clean and 240,000 units of Gel. At the split-off point unit prices are as follows: Super Soap sells for $1.20 per unit, Luxury Clean sells for $2.00 per unit and Gel sells for $0.50 per unit.
Required: Complete each of the following questions. For problems: show your work, provide labels and descriptions of amounts, be organized in your work and clearly show your solution to the question.
1. Assuming all products are sold at the split-off point, calculate the amount of joint manufacturing costs allocated to each product using the number of produced as the allocation base.
2. Assuming all products are sold at the split-off point, calculate the amount of joint manufacturing costs allocated to each product using the sales value at split-off as the allocation base.
3. Super Soap and Luxury Clean can both be processed further to enhanced soap products. Super Soap can be processed further to Super Soap Plus. Additional processing costs beyond the split-off point are $0.70 per unit for this product. The enhanced Super Soap Plus product sells for $2.40 per unit and unit sales are projected to increase by 10% for the Plus product. Luxury Clean can also be processed further to make Extra Luxurious Cleaner. Additional processing costs beyond the split-off point are $0.90 per unit for the Extra Luxurious Cleaner product. The sales price for the Extra product is $2.65 per unit and unit sales are expected to increase by 20% for this product. The Gel product cannot be processed further.
How much of the joint manufacturing costs would be allocated to each product using the netrealizable value method?
4. Which products should Soap Company sell at the split-off point and which products should be processed further to maximize company operating income? Show calculations to support your answer comparing each method by product and validate which method for each product maximizes operating income for Soap Company.