Question
In: Accounting
Lauren Inc. makes three products that can be sold at split-off or processed further and then...
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 |
Solutions
Expert Solution
| 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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