Lester Company processes a raw material called Wizon until the splitoff point were it becomes products...

Lester Company processes a raw material called Wizon until the splitoff point were it becomes products X, Y, and Z. Product X is sold at the splitoff point with no further processing. Products Y and Z require further processing to finish them before they can be sold. The following is a summary of costs and other related data for the year ending December 31, 2020.

Joint costs before the splitoff point $240,000

Separable Joint costs after splitoff to complete “Y” $132,000

Separable costs after splitoff to complete “Z” $228,000

product X Y Z

Litres processed 60,000 60,000 120,000

Selling price per litre $1.50 $3.20 $3.15

There were no inventories on hand January 1, 2020, and there was no Wizon on hand on December 31, 2020. All units of X, Y, and Z on hand at year end were complete as to processing.

REQUIRED:

1. Allocate the total joint costs to products X, Y, and Z using the net realizable value method.

2. Calculate the full cost of producing one unit of each of X, Y, and Z

.3. For each product (X, Y, and Z) calculate the dollar value of the cost of goods sold for 2020 and the ending inventory dollar value at December 31, 2020. Assume that 40,000 units of X, 60,000 units of Y, and 90,000 units of Z were sold during 2020.

Expert Solution

Part-1 Allocation of Joint cost on NRV basis- Lester Company -
	X	Y	Z	total
Production ( in Litres) (a)	60000	60000	120000	240000
Sales Price (b)	$1.50	$3.20	$3.15
Sales Value (c=aXb)	$90,000.00	$192,000.00	$378,000.00	$660,000.00
Less: Separable Costs (d)	$0.00	$132,000.00	$228,000.00	$0.00
New Realizable Value (e=cXd)	$90,000.00	$60,000.00	$150,000.00	$300,000.00
Percentage of total NRV (f )	30.00%	20.00%	50.00%

Allocation of Joint cost (240000*f)	$72,000.00	$48,000.00	$120,000.00	$240,000.00

Part-2 Computation of Full Cost of Producing One Unit of Each product
	X	Y	Z	total
Joint Cost (a)	$72,000.00	$48,000.00	$120,000.00	$240,000.00
Seperable cost (b)		$132,000.00	$228,000.00	$360,000.00
Total Cost (c=a+b)	$72,000.00	$180,000.00	$348,000.00	$600,000.00
No of Unit (d)	60000	60000	120000
Cost per Unit (c/d)	$1.20	$3.00	$2.90

Part-3 Computation of Dollar Value of Cost of Good Sold
	X	Y	Z	total
Production ( in Litres) (a)	60000	60000	120000
Unit sold (b)	40000	60000	90000
Ending Inventory (c=a-b)	20000	0	30000

Cost of Goods Sold ( Unit Sold X Cost per Unit)	$48,000.00	$180,000.00	$261,000.00	$489,000.00
Value of Ending Inventory ( Unit in Inventory X Cost per Unit)	$24,000.00	$0.00	$87,000.00	$111,000.00

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