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Class Example - CocoaChocs

Cocoa Chocs Ltd manufactures chocolate products and generates a by-product, cocoa shells, which are sold for compost. The document outlines the costs and revenues associated with cocoa bean processing, including joint costs and selling prices of various products. It also requests an analysis of joint cost allocation methods and a recommendation on whether to further process hot chocolate based on market demand and costs.

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10 views1 page

Class Example - CocoaChocs

Cocoa Chocs Ltd manufactures chocolate products and generates a by-product, cocoa shells, which are sold for compost. The document outlines the costs and revenues associated with cocoa bean processing, including joint costs and selling prices of various products. It also requests an analysis of joint cost allocation methods and a recommendation on whether to further process hot chocolate based on market demand and costs.

Uploaded by

shanghetaalleta
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Class Question | Cocoa Chocs

Cocoa Chocs Ltd is company that manufactures chocolate slabs, hot chocolate and cocoa powder.
During the manufacturing process the shells are removed from the cocoa beans, and the shells are
classified as a by-product. The shells that are removed from the cocoa beans during the
manufacturing process are used to make compost. The shells are sold to a local compost company
at a price of R3 per kilogram. Before the shells are sold, it is ground at a cost of R0.50 per
kilogram. The net realisable value of the by-product sold is used to reduce the joint cost.

The cocoa beans are bought from cocoa plantations in the Limpopo province at a cost of R8 000
per ton. During August 2012, 4 tons of cocoa beans were bought at a total cost of R32 000. Each
ton of cocoa beans that are processed results in 15% shells. The remaining 85% consists of the
following:

Chocolate
22%
slabs
Hot chocolate 26%
Cocoa powder 37%
85%

Chocolate slabs are sold at R44 per kilogram. The selling price of one kilogram hot chocolate is
75% of the selling price of chocolate slabs, and the selling price of one kilogram cocoa powder is
125% of the selling price of chocolate slabs.

Additional costs of R25 per kilogram are incurred to package the chocolate slabs. The additional
cost per kilogram to produce hot chocolate is 80% of the additional cost of the packaging of
chocolate slabs. The drying cost of the cocoa powder was R27 800 in total during August 2012.

No opening or closing inventory is held by Cocoa Chocs.

A possible demand in the market for hot chocolate which already includes sugar and milk powder
has been identified. Although the selling price will increase by R15 per kilogram, additional costs
will also be incurred. The additional costs will result in an increase of 50% in the cost per kilogram.

REQUIRED:

1. Allocate the joint cost on the basis of the net realisable value-method and the constant gross
profit percentage-method. Also calculate the gross profit percentage for each of the products
manufactured. (16)
2. List the two other methods that can also be used for the allocation of joint cost, and advise
management regarding the best method to use. (2)
3. Advise management if the hot chocolate should be processed further or not. Show all
calculations. (2)

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