Question

Davenport Company buys Alpha-11 for $6 a gallon. At the end of distilling in Department A, Alpha-11 splits off into three products: Beta-1, Beta-2, and Beta-3. Davenport sells Beta-1 at the split-off point, with no further processing; it processes Beta-2 and Beta-3 further before they can be sold. Beta-2 is fused in Department B, and Beta-3 is solidified in Department C. Following is a summary of costs and other related data for the year ended November 30.

Department	(1) Distilling			(2) Fusing			(3) Solidifying
Cost of Alpha-11	$	720,000			0			0
Direct labor		180,000		$	337,500		$	487,500
Manufacturing overhead		150,000			157,500			405,000

Products	Beta-1			Beta-2			Beta-3
Gallons sold		180,000			360,000			540,000
Gallons on hand at year-end		120,000			0			180,000
Sales	$	225,000		$	720,000		$	1,063,125

Davenport had no beginning inventories on hand at December 1 and no Alpha-11 on hand at the end of the year on November 30. All gallons on hand on November 30 were complete as to processing. Davenport uses the net realizable value method to allocate joint costs.

Required:

Compute the following:

a. The net realizable value of Beta-1 for the year ended November 30.

b. The joint costs for the year ended November 30 to be allocated.

c. The cost of Beta-2 sold for the year ended November 30. (Do not round intermediate calculations.)

d. The value of the ending inventory for Beta-1. (Do not round intermediate calculations.)

Answer 1

Solution a:

Net realizable value of Beta -1 = $225000 / 180000 * 300000 = $375,000

Solution b:

Joint costs for the year ended November 30 to be allocated = Cost of alpha 1 + Direct labor - Distilling + MOH - Distilling

= $720,000 + $180,000 + $150,000 = $1,050,000

Solution c:

Allocation of Joint Cost- NRV Method
Particulars	Beta-1	Beta-2	Beta-3	Total
Sale Value after further processing	$375,000.00	$720,000.00	$1,417,500.00	$2,512,500
Further Processing Cost	$0	$495,000	$892,500	$1,387,500
Net Realisable Value	$375,000	$225,000	$525,000	$1,125,000
Allocation of Joint Cost Beta-1 - 1050000*375/1125 Beta-2 - 1050000*225/1125 Beta-3 - 1050000*525/1125	$350,000	$210,000	$490,000	$1,050,000

Cost of Beta 2 sold = Allocated joint cost + Further processing cost

= $210,000 + $337,500 + $157,500 = $705,000

Solution d:

Total cost allocated to Beta-1 = $350,000

Total unit manufactured for Beta 1 = 180000 + 120000 = 300000

Value of ending inventory for Beta 1 = $350,000 * 120000 / 300000 = $140,000