Question

2 – Portofino Corporation produces three products in a joint process: Product A, Product B and Product C. The total joint manufacturing costs were 100,000$. Information regarding the products appears below:

	Product A	Product B	Product C
Units Produced	20,000	25,000	10,000
Sales Value at Split-off	$150,000	$50,000	$20,000
Additional costs if Processed further	$10,000	$30,000	$5,000
Sales Value if Processed Further	$170,000	$90,000	$28,000

Required:


(a) Allocate the joint costs using the relative sales value at split-off method.

(b) Allocate the joint costs using the NRV method.

Answer 1

(a): Here we will consider the sales value at split-off.

Total sales value at split-off = $150,000 + 50,000 + 20,000 = $220,000

Thus joint costs allocated to A = 150,000/220,000 * $100,000 = $68,181.82. Per unit cost = $68,181.82/20,000 units = $3.41 per unit

To B: 50,000/220,000 * 100,000 = $22,727.27. Per unit cost = 22727.27/25,000 units = $0.91 per unit

To C: 20,000/220,000 * $100,000 = $9,091.91. Per unit cost = 9,091.91/10,000 units = $0.91 per unit

(b):

		Product A	Product B	Product C
	Final sales value	170,000	90,000	28,000
	less: processing cost after split-off	10,000	30,000	5,000
a	Net Realizable value	160,000	60,000	23,000
b	Total net realizable value	243,000
c = a/b	Proportion of each product's NRV to total NRV	65.84%	24.69%	9.47%
d	Total joint costs	100,000.00
e = c*d	Total joint costs allocated	65,843.62	24,691.36	9,465.02
	Joint costs per unit	3.29	0.99	0.95

The formulas can be seen below: