Answer (A) is correct.
The sales value at split-off method is based on the relative sales values of
the separate costs at split-off. Gross margin percentage is calculated as
the difference between sales price and cost divided by sales price. Since
each joint product receives the amount of separate cost proportional to its
sales value, the gross margin percentage calculation will be the same. For
instance, if there are two products whose sales prices are $40 and $60,
respectively, the joint product costs allocated will also be in a 2:3 ratio,
e.g., $10 and $15.
1. The first product will have a gross margin percentage of
2. ($40 – $10) ÷ $40 = 75%
3. The second product will also have a gross margin
percentage of the following:
4. ($60 – $15) ÷ $60 = 75%