Question

Webster Company produces 40,000 units of product A, 30,000 units of product B, and 15,000 units of product C from the same manufacturing process at a cost of $390,000. A and B are joint products, and C is regarded as a by-product. The unit selling prices of the products are $40 for A, $30 for B, and $1 for C. None of the products requires separable processing. Of the units produced, Webster Company sells 33,000 units of A, 29,000 units of B, and 15,000 units of C. The firm uses the net realizable value method to allocate joint costs and by-product costs. Assume no beginning inventory.

Required:

1. What is the value of the ending inventory of product A?

2. What is the value of the ending inventory of product B?

Answer 1

	Product	Joint Cost
	A	B	C
Units produced	40,000	30,000	15,000
Selling Price per Unit	$              40.00	$          30.00	$           1.00
Net realizable value	$       16,00,000	$     9,00,000	$       15,000
Total joint costs				$   3,90,000
Less: Sales value of byproduct				$      15,000
Joint Cost to be allocated				$   3,75,000
Net realizable value	$       16,00,000	$     9,00,000
Ratio for allocation of joint costs	64.00%	36.00%
Allocated Joint Cost	$         2,40,000	$     1,35,000		$   3,75,000
Cost Per Unit	$                6.00	$            4.50
Ending Inventory Units	7,000	1,000
Cost of ending inventory	$            42,000	$          4,500