Question

Lauren Inc. makes three products that can be sold at split-off or processed further and then sold. The joint cost for April is $1,512,000.

	Bottles of	Sales Price	Separate Cost	Final Sales
Product	Output	at Split-Off	after Split-Off	Price
Perfume	28,000	$7.00	$2.50	$16.50
Eau de toilette	44,800	5.00	1.50	13.00
Body splash	39,200	5.00	2.00	12.00

The number of ounces in a bottle of each product is: perfume, one; eau de toilette, two; and body splash, three. Assume that all products are processed further after split-off.

a. Allocate the joint cost based on the number of bottles, weight, and approximated net realizable values at split-off.
Note: Round proportions to the nearest whole percentage and dollar amounts to the nearest whole dollar.

Allocation by bottles
Perfume
Eau de Toilette
Body Splash
Total

Allocation by weight
Perfume
Eau de Toilette
Body Splash
Total

Allocation by approx NRV
Perfume
Eau de Toilette
Body Splash
Total

b. Assume that all products are processed further and completed. At the end of the period, the inventories are as follows: perfume, 840 bottles; eau de toilette, 2,240 bottles; and body splash, 2,352 bottles. Determine the values of the inventories based on answers obtained in (a).
Note: Round your final answer to the nearest whole dollar.
1. Allocation by bottles

Inventory levels
Perfume
Eau de Toilette
Body Splash
Total

2. Allocation by weight

Inventory levels
Perfume
Eau de Toilette
Body Splash
Total

3. Allocation by approximated NRV

Inventory levels
Perfume
Eau de Toilette
Body Splash
Total

Answer 1

Part A
	Allocation using Bottles
		Perfume	Eau de Toilette	Body Splash	Total
	Units produced	28000	44800	39200	112000
	Proportion of units produced	25%	40%	35%
	Joint cost of $1,512,000 allocated	$378,000	$604,800	$529,200	$1,512,000
	Allocation using Sales Value at split off method
		Perfume	Eau de Toilette	Body Splash	Total
	Units produced	28000	44800	39200
	No. of ounces in bottles	1	2	3
	Total Ounces Produced	28000	89600	117600	235200
	Proportion of ounces in bottles	12%	38%	50%
	Joint cost of $1,512,000 allocated	$180,000	$576,000	$756,000	$1,512,000
	Allocation using Net Realisable Value method
		Perfume	Eau de Toilette	Body Splash	Total
	Units produced	28000	44800	39200
	Final Selling price	$                                                       16.50	$                                        13.00	$                                               12.00
	Sales Value(Units produced*Final Selling price)	$462,000	$582,400	$470,400	$1,514,800
	Separable Cost per unit	$                                                         2.50	$                                          1.50	$                                                 2.00
	Separable Cost(Units produced*Separable Cost per unit)	$70,000	$67,200	$78,400
	NRV(Sales value-Separable costs)	$392,000	$515,200	$392,000	$1,299,200
	Proportion of NRV	30%	40%	30%
	Joint cost of $1,512,000 allocated	$456,207	$599,586	$456,207	$1,512,000
Part B	Inventory based on Bottles
		Perfume	Eau de Toilette	Body Splash
	Units produced	28000	44800	39200
	Joint Cost allocated	$                                                   378,000	$                                    604,800	$                                           529,200
	Separate Cost	$                                                     70,000	$                                      67,200	$                                             78,400
	Total Cost	$                                                   448,000	$                                    672,000	$                                           607,600
	NRV	$392,000	$515,200	$392,000
	Cost per unit	$16.00	$15.00	$15.50
	NRV per unit	$14.00	$11.50	$10.00
	Inventory units	840	2240	2352
	Inventory(Lower of Cost per unit and NRV per unit)	$11,760	$25,760	$23,520
	Inventory based on Weight
		Perfume	Eau de Toilette	Body Splash
	Units produced	28000	44800	39200
	Joint Cost allocated	$                                                   180,000	$                                    576,000	$                                           756,000
	Separate Cost	$                                                     70,000	$                                      67,200	$                                             78,400
	Total Cost	$                                                   250,000	$                                    643,200	$                                           834,400
	NRV	$392,000.00	$515,200	$392,000
	Cost per unit	$8.93	$14.36	$21.29
	NRV per unit	$14.00	$11.50	$10.00
	Inventory units	840	2240	2352
	Inventory(Lower of Cost per unit and NRV per unit)	$7,500	$25,760	$23,520
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