Ted Brown is the chief financial officer of Haywood Inc., a large manufacturer of cosmetics and other personal care products. Tedis conducting a financial analysis of the firm's line of hand lotions which consists of three products: SkinSalve, SkinCream, and SkinBalm Total
sales for the three products in the recent year were $400,000, $250,000 and $500,000, respectively. Because there is a small amount of
additional processing cost for each of the three products, which differs between the products ($20,000, 550,000 and $30,000, respectively).
Ted has been using the net realizable value method for allocating the joint production cost of $500,000. However, he is not satisfied with the
result of somewhat different gross margin percentage ratios (gross margin/sales) for the three products when using this approach. He knows
only of the physical measure method, the sales value at split-off method, and the net realizable value method for allocating joint cost
Required:
Prepare a new cost allocation for Ted so that after allocation of joint costs and separable costs, the gross margin percentage is the same for
all three products