Question

XYZ firm makes three products - M1, M2 and B -- in a joint setting. The NRV of the three products at the splitoff point are $1,500, $2,500 and $250 respectively. The firm incurs joint costs of $3,200, and sold $200 worth of product B. What is the joint cost allocated to M1, under the NRV method, if B is a by product accounted for under the sales method?

Answer 1

Working Notes: 1
	Calculation of Joint Cost incurred for Product M1 & M2
	Total Joint Cost	$                        3,200
	Less: Sale Value of Prodcut B	$                           200
	Net Joint Cost allocated to Both Product M1 & M2	$                        3,000
Working Notes: 2
	Calculation of Ratio of Net realizable value of Product M1 & M2
	Realizable Value of Product M1 =	$                        1,500
	Realizable Value of Product M2 =	$                        2,500
	Total	$                        4,000
	Ratio for joint expenses = 15:25 or 15/40 & 25 /40 for product M1 & M2
Solution:
	Net Joint Cost after sale of By Product =	$                        3,000
	Joint Cost of Product M1 = $ 3,000 X 15 /40 =	$                        1,125
	Joint Cost of Product M2 = $ 3,000 X 25 /40 =	$                        1,875
Answer = Joint Cost Allocation to Product M1 = $ 1,125