Question

Fletcher Fabrication, Inc., produces three products by a joint production process. Raw materials are put into production in Department X, and at the end of processing in this department, three products appear. Product A is sold at the split-off point with no further processing. Products B and C require further processing before they are sold. Product B is processed in Department Y, and product C is processed in Department Z. The company uses the estimated net realizable value method of allocating joint production costs. Following is a summary of costs and other data for the quarter ended June 30.

No inventories were on hand at the beginning of the quarter. No raw material was on hand at June 30. All units on hand at the end of the quarter were fully complete as to processing.

Products	A			B			C
Pounds sold		20,000			59,000			70,000
Pounds on hand at June 30		50,000			0			40,000
Sales revenues	$	45,000		$	265,500		$	367,500

Departments	X			Y			Z
Raw material cost	$	168,000		$	0		$	0
Direct labor cost		72,000			121,350			287,625
Manufacturing overhead		30,000			31,650			109,875

Required:

a. Determine the following amounts for each product: (Do not round intermediate calculations.)

(1) Estimated net realizable value used for allocating joint costs.

(2) Joint costs allocated to each of the three products.

(3) Cost of goods sold.

(4) Finished goods inventory costs, June 30.

b. Assume that the entire output of product A could be processed further at an additional cost of $6.00 per pound and then sold for $12.90 per pound. Compute the incremental income from further processing A.

c. Considering the results of part b, should the company process product A further?

	Yes
	No

Answer 1

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Part a (1)
		A	B	C	Total
Total Sales Revenue	A	$                      45,000	$                          265,500	$        367,500
Units Sold	B	20000	59000	70000
Selling price per unit	C=A/B	$                           2.25	$                                 4.50	$               5.25
Units Produced	D=Sale+Ending Inventory	70000	59000	110000
Cost of Goods Produced	E=C*D	$                    157,500	$                          265,500	$        577,500
Less: Separate Cost:
Direct Labor Cost			$                          121,350	$        287,625
Manufacturing Overhead			$                             31,650	$        109,875
Net Realizable Value at Split off point		$                    157,500	$                          112,500	$        180,000	$       450,000
Weights		35%	25%	40%
Part a (2)
Total Joint Costs	168000+72000+30000	$                    270,000
Allocatiion:
A	270000*35%	$                      94,500
B	270000*25%	$                      67,500
C	270000*40%	$                    108,000
Part a (3) and (4)
		Cost of Goods Sold	Ending Inventory Cost
Product A
Allocated Joint Cost	$                                   94,500
Cost of Goods Sold	94500/70000*20000	$                      27,000
Ending Inventory Cost	94500/70000*50000		$                             67,500
Product B
Allocated Joint Cost	$                                   67,500
Separate Cost	$                                 153,000
Total Cost	$                                 220,500
Cost of Goods Sold	220500/59000*59000	$                    220,500
Ending Inventory Cost	No Ending Inventory		$                                      -
Product C
Allocated Joint Cost	$                                 108,000
Separate Cost	$                                 397,500
Total Cost	$                                 505,500
Cost of Goods Sold	505500/110000*70000	$                    321,682
Ending Inventory Cost	505500/110000*40000		$                          183,818
Part b
Incemental Revenue on 70000 Units	(12.90-2.25)*70000	$                    745,500
Less: Incremental Processing Cost	70000*6	$                    420,000
Incremental Income		$                    325,500
Part c
YES