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 21,000 63,000 71,000 Pounds on hand at June 30 45,000 0 44,000 Sales revenues $ 52,500 $ 302,400 $ 372,750 Departments X Y Z Raw material cost $ 163,000 $ 0 $ 0 Direct labor cost 71,000 93,000 282,000 Manufacturing overhead 28,000 31,900 104,500 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 $5.60 per pound and then sold for $12.20 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

1. Estimated Net Realizable Value used for allocating Joint Costs:

Estimated net realizable value of Product A = sales value = $52,500

Estimated net realizable value of Product B = Sales Value - Further Processing Cost = $302,400x108,000/63,000 - $93,000 - $31,900 = $518,400 - $124,900 = $393,500

Estimated net realizable value of Product C = Sales Value - Further Processing Cost = $372,750x115,000/71,000 - $282,000 - $104,500 = $603,750 - $386,500 = $217,250

2. Joint Costs allocated to each of the products:

Total Joint Costs = Department X Raw Material Cost + Direct Labor Cost + Manufacturing overhead

= $163,000 + $71,000 + $28,000

= $262,000

Total Net Realizable Value = $52,500 + $393,500 + $217,250 = $663,250

Joint Cost allocated to Product A = $262,000 x ($52,500 $663,250) = $20,738.786

Joint Cost allocated to Product B = $262,000 x ($393,500 $663,250) = $155,442.14097

Joint Cost allocated to Product C = $262,000 x ($217,250 $663,250) = $85,819.0727

Working:

3. Cost of Goods Sold:

4. Ending Inventory is as follows: