explain the "net realisable value" (NRV) method approach to allocate joint costs

Solutions

Expert Solution

The net realizable value method is one of the several methods used for allocating joint costs incurred prior to the split-off point to the various joint products produced.

The net realizable value method is used for allocating joint costs to products when one or more of the joint products produced cannot be sold at the split-off point but needs further processing and incurring of separable costs in order to make it ready to be sold.

Under this method, the joint costs are allocated to the joint products on the basis of a hypothetical sales value since a sales value may not be available at the split-off point for products that need further processing. The hypothetical sales value is computed by deducting the separable costs incurred after the split-off point from the market price. The joint costs are then allocated amongst the joint products according to their computed hypothetical sales value.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Explain the "Net Realisable Value" (NRV) method approach to allocate joint costs. [8 marks]

Explain how net realizable value (NRV) is calculated and how the lower of cost of net...

Explain how net realizable value (NRV) is calculated and how the lower of cost of net realizable value rule (LCNRV) is applied to valuing inventory. a) Definition of net realizable value b) Alternative methods for applying the rule c) Describe the two alternative methods for recording adjustments under the LCNRV method d) Assume that a firm has an ending inventory valued at cost of $100,000 and at NRV at $85,000, record the journal entries for each of the two recording...

7.26 Sales-Value-at-Split-off Method Allocate the joint costs using the sales-value-at-split-off method. Alomar Company manufactures four products...

7.26 Sales-Value-at-Split-off Method Allocate the joint costs using the sales-value-at-split-off method. Alomar Company manufactures four products from a joint production process: barlon, selene, plicene, and corsol. The joint costs for one batch are as follows: Direct materials $67,900 Direct labor 34,000 Overhead 25,500 At the split-off point, a batch yields 1,400 barlon, 2,600 selene, 2,500 plicene, and 3,500 corsol. All products are sold at the split-off point: barlon sells for $15 per unit, selene sells for $20 per unit, plicene...

llocating Joint Costs Using the Net Realizable Value Method A company manufactures three products, L-Ten, Triol,...

llocating Joint Costs Using the Net Realizable Value Method A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,300. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows: Product Gallons Further Processing Cost per Gallon Eventual Market Price per Gallon L-Ten 3,200 $0.70 $2.10 Triol 3,700 1.10 5.40 Pioze 2,000 1.50 6.20...

Allocating Joint Costs Using the Net Realizable Value Method A company manufactures three products, L-Ten, Triol,...

Allocating Joint Costs Using the Net Realizable Value Method A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,600. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows: Product Gallons Further Processing Cost per Gallon Eventual Market Price per Gallon L-Ten 3,500 $0.60 $2.60 Triol 4,000 0.90 5.10 Pioze 2,000 1.40 6.00 Required: 1. Allocate the...

Distinguish between the sales value of the split-off method and the NRV method. Discuss the different...

Distinguish between the sales value of the split-off method and the NRV method. Discuss the different between the sale value of the split-off method and the NRV method of accounting for by-products, focsuing on what conditions are necessary to use each method.

The inventory ledger account balance on June 30, 2019, was $7,650, and net realisable value for...

The inventory ledger account balance on June 30, 2019, was $7,650, and net realisable value for each product line exceeded the cost. The cost of inventory on hand June 30, 2019, was determined by physical count, however, it was only $7,578. In investigating the reasons for the discrepancy, Beyer Ltd discovered the following. Goods costing $87 were sold for $110 (GST Inclusive) on June 26, 2019, on FOB destination (seller pays shipping) shipping terms. The goods were in transit on...

The inventory ledger account balance on June 30, 2019, was $15,300, and net realisable value for...

The inventory ledger account balance on June 30, 2019, was $15,300, and net realisable value for each product line exceeded the cost. The cost of inventory on hand June 30, 2019, determined by physical count, however, was only $15,156. In investigating the reasons for the discrepancy, Boodja-Dooga Ltd discovered the following. Goods costing $174 were sold for $220 (GST Inclusive) on June 26, 2019, on FOB destination (seller pays shipping) shipping terms. The goods were in transit on June 30,...

When should income be recognised? In the context of inventory valuation, what is Net Realisable Value,...

When should income be recognised? In the context of inventory valuation, what is Net Realisable Value, when might it be used and why?

Computing Joint Costs—Sales Value at Split-Off and Net Realizable Value Methods LeMoyne Manufacturing Inc.’s joint cost...

Computing Joint Costs—Sales Value at Split-Off and Net Realizable Value Methods LeMoyne Manufacturing Inc.’s joint cost of producing 2,000 units of Product X, 1,000 units of Product Y, and 1,000 units of Product Z is $50,000. The unit sales values of the three products at the split-off point are Product X–$30, Product Y–$100, and Product Z–$90. Ending inventories include 200 units of Product X, 300 units of Product Y, and 100 units of Product Z. In your interim calculations, round...

Subjects