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	$	710,000			0			0
Direct labor		171,000		$	339,000		$	495,000
Manufacturing overhead		150,000			162,000			409,000

Products	Beta-1			Beta-2			Beta-3
Gallons sold		186,000			372,000			558,000
Gallons on hand at year-end		123,000			0			188,000
Sales	$	651,000		$	2,604,000		$	3,906,000

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

a. Net realizable value of Beta - 1.

There is no further processing of Beta - 1 after the split off point. So, its NRV will be calculated as follows:-

= (Total sales + Total Closing stock) * Price per unit

= (186,000+123,000) * (651,000/186,000)

= 309,000 * 3.5

= $ 1,081,500

b. Total joint cost to be allocated:-

The total joint cost to be allocated will be the complete cost of distilling process:-

Cost of Alpha - 11 + Direct labour + Manufacturing overhead

= 710,000+171,000+150,000

= 1,031,000

c. The cost of Beta-2 sold for the year ended November 30.

Cost of Beta 2 will be the joint cost of Distilling process and cost of Fusing process.

Cost of distilling process:-

NRV of Beta B = Sales - Cost of fusing

= 2,604,000 - 339,000 - 162,000

= 2,103,000

NRV of Beta C = Sales - Cost of solidifying. However, here we have closing stock for Beta C.

So, the cost per unit = 3,906,000/558,000 = 7 per unit.

So, NRV = (746,000 * 7) - 495,000 - 409,000

= 4,318,000

So, Joint cost will be allocated at the ratio:-

NRV of A:NRV of B : NRC of C

= 1,081,500:2,103,000 : 4,318,000

So, Cost of distilling for Beta B is,

= (1,031,000 * 2,103,000)/7,502,500

= 288,996

So, cost of Beta-2 sold for the year:-

Cost of distilling + Cost of fusing

= 288,996 + 339,000 + 162,000

= $ 789,996

d. The value of the ending inventory for Beta-1

= Cost of Distilling process = (NRV of Beta 1 / 7,502,500 * 1,031,000)

= 1,081,500/7,502,500 * 1,031,000

= 148,620

Cost per unit:-

= 148,620 / 309,000

= 0.4810 per unit.

So, closing stock = 0.4810 * 123,000 (Gallons on year end)

= $ 59,160 (rounded off for calculation)