Comparison of alternative joint-cost-allocation methods, further-processing decision, chocolate products.

The Cocoa Factory manufactures and distributes chocolate products.

It purchases cocoa beans and processes them into two intermediate products: chocolate-powder liquor base and milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 900 pounds of cocoa beans yields 40 gallons of chocolate-powder liquor base and 160 gallons of milk-chocolate liquor base.

The chocolate-powder liquor base is further processed into chocolate powder. Every 40 gallons of chocolate-powder liquor base yield620 pounds of chocolate powder. The milk-chocolate liquor base is further processed into milk chocolate. Every 160 gallons of milk-chocolate liquor base yield 1,040 pounds of milk chocolate.

Production and sales data for August 2020 are as follows (assume no beginning inventory):

Cocoa beans processed, 15,300 pounds

Costs of processing cocoa beans to splitoff point (including purchase of beans), $41,000

	Production	Sales	Selling Price	Separable Processing Costs
Chocolate powder	10,540 pounds	6,200 pounds	$10 per pound	$32,516
Milk chocolate	17,680 pounds	12,000 pounds	$12 per pound	$39,000

Cocoa Mass Edibles Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. There is an active market for these intermediate products. In August

2020, Cocoa Mass Edibles Factory could have sold the chocolate-powder liquor base for $20 a gallon and the milk-chocolate liquor base for $45 a gallon.

1.	Calculate how the joint costs of $41,000 would be allocated between chocolate powder and milk chocolate under the following methods:
	a.	Sales value at splitoff
	b.	Physical measure (gallons)
	c.	NRV
	d.	Constant gross-margin percentage NRV
2.	What are the gross-margin percentages of chocolate powder and milk chocolate under each of the methods in requirement 1?
3.	Could Cocoa Mass Edibles Factory have increased its operating income by a change in its decision to fully process both of its intermediate products? Show your computations.