Question

Wisconsin Milk and Ice Cream Manufacturing operates a single plant in Sun Prairie, Wisconsin. It manufactures milk and ice cream for retail and private label marketers in the Midwest.

	Joint costs Joint costs of processing raw milk			Cream	Liquid Skim
Joint costs	$                      1,000,000
[from 300,000 gallons of milk]
Separable costs buttercream				$                               600,000
Separable costs milk					$                         500,000
Raw Milk is processed further to make Cream and Liquid Skim				Cream is processed further to make Buttercream	Liquid Skim is processed further to make Milk
	Cream	Liquid Skim		Buttercream	Milk
Beg Inventory (Gallons)	0	0		0	0
Production	100,000	150,000		90,000	125,000
Transfer	100,000	150,000
Sales in June				80,000	115,000
End inventory (Gallons)				10,000	10,000
Selling price per gallon	25	18		40	50
Required:
1). Compute the Net Realizable Value (NRV) Method
2). Compute the Product Line Income statement for month ended June using the NRV Method

Requirements:

Compute the Net Realizable Value (NRV) method.

Complete the Product Line Income statement for month ended June using the NRV Method

Answer 1

Net Realizable value = Sale value - Further processing cost

Here sale value should be taken for total production.

	Butter cream	Milk
Units Produced	90000	125000
Selling price	40	50
Sale value of production	3600000	6250000
(-) Further processing cost
or separable cost (SC)	600000	500000
NRV = Sale value - S.C	3000000	5750000

Question - 2

The Joint cost of 1000,000 to be shared between these two products using the NRV method. That means we use NRV ratio = 3000,000 : 5750,000 or 12 :23

Butter cream = 1000,000 * 12/35 = 342,857

Milk = 23 / 35 * 1000,000 = 657,143

Product line Income statement

	Butter cream	Milk	Total
Joint cost	342857	657143	1000000
Seperable cost	600000	500000	1100000
Total cost	942857	1157143	2100000
Units produced	90000	125000
Cost per unit	10.47618889	9.257144
Sales Revenue	3200000	5750000	8950000
(-) Cost of goods sold	838095	1064572	1902667
Gross profit	2361905	4685428	7047333