Joint Cost Allocation. Memory Manufacturing Company (MMC) produces memory modules in a two-step process: chip fabrication and module assembly. In chip fabrication, each batch of raw silicon wafers yields 500 standard chips and 500 deluxe chips. Chips are classified as standard or deluxe on the basis of their density (the number of memory bits on each chip). Standard chips have 500 memory bits per chip, and deluxe chips have 1,000 memory bits per chip. Joint costs to process each batch are $24,000. In module assembly, each batch of standard chips is converted into standard memory modules at a separately identified cost of $1,000 and then sold for $8,500. Each batch of deluxe chips is converted into deluxe memory modules at a separately identified cost of $1,500 and then sold for $25,000.
1. Allocate joint costs of each batch to deluxe modules and standard modules using (a) the NRV method, (b) the constant gross-margin percentage NRV method, and (c) the physical-measure method, based on the number of memory bits. Which method should MMC use?
2. MMC can process each batch of 500 standard memory modules to yield 400 DRAM modules at an additional cost of $1,600. The selling price per DRAM module would be $26. Assume MMC uses the physical-measure method. Should MMC sell the standard memory modules or the DRAM modules?