70.2K

Verified Solution

Link Copied!

Leather World buys raw Nguni cow hides from a farmer in Limpopo. The hides weigh 5kg each and Leather World pays R1000 per hide. Before the hides can be used in furniture manufacturing, it must first be cleaned. Hides are cleaned in batches of 100 hides at a time. The cost of cleaning 100 hides is R10 000 in supervision and labour, and R5 000 in other overheads. At the end of the cleaning process 100 hides of raw hides render two joint products with the following statistics:

300 kgs of A-Grade hides

These are high quality hides used for manufacturing of Nguni hide chairs and sofas.

The costs of converting A-Grade hides into hides ready for manufacturing (measuring and cutting of the hides) are R10 per 1kg of A-Grade hide.

"A" Grade hides are sold at R1500 per kg.

300kgs of A-Grade hides renders 250kgs of Nguni hides used for chairs and sofas.

200 kgs of B-Grade hides

These hides are suitable for hides used as loose floor coverings in houses. It is of a lower quality due to scars on the hides.

The costs of converting the B-Grade hides into hides ready for floor coverings are minimal at R5 per 1kg of B-Grade hide.

B-Grade hides are sold at R1000 per kg.

200kgs of B-Grade hides renders 190kg of Nguni hides used for floor covering.

There is no market for the hides before they are prepared for either furniture manufacturing or floor covering.

Required:

1. Calculate the total joint costs to be allocated to "A" Grade hides and "B" Grade hides. Your calculations should be based on 100 Nguni hides. (2 marks)

2. Calculate the amount of the joint cost to be allocated to each grade of Nguni hide on the physical measures basis (kg's). (3 marks)

3. If Leather World wishes to allocate the joint costs to the final products in such a way that the gross profit margin percentage is the same on the "A" Grade hides, as it is on the "B" Grade hides, calculate the amount of the joint costs to be allocated to the 300kg of A-grade Nguni hides.

Answer & Explanation Solved by verified expert

See Answer