Question

MC Qu. 45 Garrison Co. produces three products ...

Garrison Co. produces three products — X, Y, and Z — from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Garrison's production policy follow.

	Units	Sales Value at	If Processed Further
Product	Produced	Split Off	Sales Value	Additional Costs
X	6,000	$40,000	$80,000	$1,200
Y	3,000	15,000	40,000	3,000
Z	1,000	16,000	30,000	1,500

The amount of joint costs allocated to product Y using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

$18,773.

$23,701.

$30,769.

$65,530.

$84,766.

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Actuarial	Rating	Marketing	Sales
Actuarial	0%	40%	20%	40%
Rating	25%	0%	37.5%	37.5%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Actuarial	$60,000
Premium Rating	$40,000
Marketing	$60,000
Sales	$70,000

The total cost including direct cost accumulated in the marketing department using the direct method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

$100,000.

$104,000.

$126,000.

$130,000.

$87,000.

Answer 1

The amount of joint costs allocated to Product Y using the net realizable value method
	Product
	X	Y	Z	Total
Units sold	6000	3000	1000	10000
Sales Value	$80,000	$40,000	$30,000	$150,000
Additional Cost	$1,200	$3,000	$1,500	$5,700
Net realizable value	$78,800	$37,000	$28,500	$144,300
Percent of NRV	54.6085%	25.6410%	19.7505%	100%
Joint cost allocation	65530	30769	23701	$120,000
Net realizable value = Sales value - Additional cost
Percent of NRV = Net realizable value of product / net realizable value of total x 100
Joint cost allocation = Joint costs x Percent of NRV
= $120000 x 25.6410%
= $30769 for Product Y

The total cost including direct cost accumulated in marketing department
using the direct method
	Service		Operation		Total
	Actuarial	Rating	Marketing	Sales	Total
Departmental alliocation base
Actuarial	0%	40%	20%	40%	100%
Rating	25%	0	37.5%	37.5%	100%
Total direct operating cost	$60,000	$40,000	$60,000	$70,000	$230,000
Reallocating service department
cost to operations department
Direct Method
Actuarial service % to operations
department			20%	40%	60%
Allocation % as per the direct
method			33.33%	66.67%	100%
Allocated amount			$20,000	$40,000	$60,000
Rating service % to operations
department			37.50%	37.50%	75%
Allocation % as per the direct
method			50.00%	50.00%	100%
Allocated amount			$20,000	$20,000	$40,000
Total for Operations Department			$100,000	$130,000	$230,000

Under direct method, cost of service department is directly allocated to operations department