Homework assignment 3: GMMK Ltd. In Tutorial Library

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TITLE: Homework assignment 3: GMMK Ltd.

CLASS / COURSE: Management Accounting

QUESTION DESCRIPTION:

 

GMMK Ltd buys crude sunflower oil. Refining this oil results in four products at the split-off point: A, B, C, and D. Product C is fully processed at the split-off point and sold without further refinement. Products A, B, and D can be individually further processed into Super A, Super B and Super D. In the most recent month (December), the output at the split-off point was:
 
Product A 300,000 litres
Product B 100,000 litres
Product C 50,000 litres
Product D 50,000 litres
 
The joint costs were €100,000.
 
GMMK had no beginning or ending stocks. Sales of product C in December were €50,000. The total output of products A, B and D was further refined and then sold. Data related to December are as follows:
 
Separable costs Sales
Super A €200,000 €300,000
Super B €80,000 €100,000
Super D €90,000 €120,000
 
GMMK could also have chosen not to further refine A, B and D, but to sell these products at the split-off point, like product C. This would have yielded the following sales for the December production:
 
Product A €50,000
Product B €30,000
Product D €70,000
 
Required:
 
1. What is the gross-margin percentage (profit as a percentage of sales revenue) for each of the products sold in December, using the following methods for allocating the €100,000 of joint costs.
(a) Sales value at split-off point
(b) Litres produced
(c) Net Realizable Value
2. Could GMMK have increased its December operating profit if it had made different choices regarding further processing A, B or D? Show the effect on operating profit of any changes you recommend.

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SUBJECTS / CATEGORIES:
1. Finance
2. Financial Management
3. Accounting

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