Inorganic Chemicals (IC) processes salt into various industrial products. In July 2012, IC incurred joint costs of $100,000 to purchase salt and convert it into two products: caustic soda and chlorine. Although there is an active outside market for chlorine, IC processes all 800 tons of chlorine it produces into 500 tons of PVC (polyvinyl chloride), which is then sold. There was no beginning or ending inventories of salt, caustic soda, chlorine or PVC in July. Information for July 2012 production and sales follow:
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Joint Costs
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PVC
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Joint costs (costs of salt and processing to split-off point)
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$100,000
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Separable costs of processing 800 tons of chlorine into 500 tons of PVC
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$20,000
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Caustic soda
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Chlorine
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PVC
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Beginning inventory (tons)
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0
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0
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0
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Production (tons)
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1200
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800
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500
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Transfer for further processing (tons)
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800
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Sales (tons)
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1200
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500
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Ending inventory (tons)
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0
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0
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0
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Selling price per ton in active outside market (for products not actually sold)
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$75
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Selling price per ton for products sold
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$50
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$200
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Required:
1) Allocate the joint costs of $100,000 between caustic soda and Chlorine under: (a) the sales value at split-off method, and (b) the physical value method.
2) Allocate the joint costs of $100,000 between caustic soda and PVC under the NRV method.
3) Under the 3 allocation methods in (1) and (2), what is the gross margin percentage of (a) caustic soda and (b) PVC.