Question

Davenport Company buys Alpha-11 for $6 a gallon. At the end of distilling in Department A, Alpha-11 splits off into three products: Beta-1, Beta-2, and Beta-3. Davenport sells Beta-1 at the split-off point, with no further processing; it processes Beta-2 and Beta-3 further before they can be sold. Beta-2 is fused in Department B, and Beta-3 is solidified in Department C. Following is a summary of costs and other related data for the year ended November 30.

Department	(1) Distilling			(2) Fusing			(3) Solidifying
Cost of Alpha-11	$	718,000			0			0
Direct labor		175,000		$	346,000		$	497,000
Manufacturing overhead		140,000			159,000			403,000

Products	Beta-1			Beta-2			Beta-3
Gallons sold		188,000			376,000			564,000
Gallons on hand at year-end		126,000			0			180,000
Sales	$	658,000		$	2,256,000		$	3,384,000

Davenport had no beginning inventories on hand at December 1 and no Alpha-11 on hand at the end of the year on November 30. All gallons on hand on November 30 were complete as to processing. Davenport uses the net realizable value method to allocate joint costs.

Required:

Compute the following:

a. The net realizable value of Beta-1 for the year ended November 30.

b. The joint costs for the year ended November 30 to be allocated.

c. The cost of Beta-2 sold for the year ended November 30. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

d. The value of the ending inventory for Beta-1. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Answer 1

1) since there is no further processing for beta 1 after split off,the net realizable value is simply the sales value of all units produced

price per unit = $658000/188000 = $3.5

​​​​​​units produced = unit's sold + ending inventory

= 188000 + 126000 = 314000

Total net realizable value = unit's produced × price per unit

= 314000 × $3.5 = $1099000

total net realizable value = $1099000

b) joint cost allocated all cost upto split off point it is all cost in department 1

Cost of alpha 11	$718000
Direct labour	$175000
Manufacturing overhead	$140000
Total	$1033000

C)

Net realizable value of beta 1	$1099000
NET realizable value of beta 2(note 1 below)	$1751000
NET realizable value of beta 3 ( note 2 below)	$3564000
Total	$6414000

​Note 1 : $2256000 - $346000 - $159000 = $1751000

note 2 : $3384000/564000×744000 - $497000 - $403000 = $3564000

Allocation of joint cost to beta 2($1751000/$6414000×$1033000)	$282005
Additional processing cost
Direct labour	$346000
Overhead	$159000
Total	$787005

D) using the information from above c the allocation of beta 1 is

$1099000/$6414000 ×$1033000 = $176998

Cost per unit. = $176998/314000 = $0.564

Cost of ending inventory

= 126000 × $0.564 = $71064

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