Framingham Ltd

Essay

Framingham Ltd. produces three products out of a common process. The company currently uses the physical measures method to allocate joint costs to the three product lines: Leonid (L), Madagascar, (M) and Napoleon (N). The manager of the Napoleon product line is particularly disgruntled. He believes that his product line is allocated a disproportionate share of joint costs. In a recent managers' meeting, he argued that the company should consider using sales value as split off as the joint cost allocation method. He stated that his product is sold in a highly competitive market and increasing price is not an option.
The manager of the Leonid product line disagreed strongly. He stated that all products are sold in a competitive market place and that allocating joint costs on physical measures was simple and easily verifiable. The manager of the Madagascar product line sat quietly through the meeting and she did not seem to favour one method over the other.
As the assistant controller, you were asked by the controller to look into the concerns of the product line managers. The following additional information is available:
Joint costs for the company are $950,000.
Required:
As the assistant controller, prepare a report to the controller.