Question
In: Accounting
llocating Joint Costs Using the Net Realizable Value Method A company manufactures three products, L-Ten, Triol,...
llocating Joint Costs Using the Net Realizable Value Method
A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,300. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:
| Product | Gallons | Further Processing Cost per Gallon |
Eventual Market Price per Gallon |
|
|---|---|---|---|---|
| L-Ten | 3,200 | $0.70 | $2.10 | |
| Triol | 3,700 | 1.10 | 5.40 | |
| Pioze | 2,000 | 1.50 | 6.20 |
Required:
1. Allocate the joint cost to L-Ten, Triol, and Pioze using the net realizable value method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.
| Joint Cost | |
| Grades | Allocation |
| L-Ten | $ |
| Triol | |
| Pioze | |
| Total | $ |
2. What if it cost $2.10 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to the three products? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.
| Joint Cost | |
| Grades | Allocation |
| L-Ten | $ |
| Triol | |
| Pioze | |
| Total | $ |
Solutions
Expert Solution
Net realizable value = Sale value - Additional processing cost
| Product | Sale value | Additional processing cost | Net realizable value |
| L-Ten | $6,720 (3,200*$2.10) | $2,240 (3,200*$0.70) | $4,480 |
| Triol | $19,980 (3,700*$5.40) | $4,070 (3,700*$1.10) | $15,910 |
| Pioze | $12,400 (2,000*$6.20) | $3,000 (2,000*$1.50) | $9,400 |
| $29,790 |
Percentage of joint costs to be allocated to L-Ten = $4,480 / $29,790 = 15.0386%
Percentage of joint costs to be allocated to Triol = $15,910 / $29,790 = 53.4072%
Percentage of joint costs to be allocated to Pioze = $9,400 / $29,790 = 31.5542%
| Grades | Joint cost allocation |
| L-Ten | $1,850 ($12,300*15.0386%) |
| Triol | $6,569 ($12,300*53.4072%) |
| Pioze | $3,881 ($12,300*31.5542%) |
| Total | $12,300 |
2.
Net realizable value = Sale value - Additional processing cost
| Product | Sale value | Additional processing cost | Net realizable value |
| L-Ten | $6,720 (3,200*$2.10) | $6,720 (3,200*$2.10) | $0 |
| Triol | $19,980 (3,700*$5.40) | $7,770 (3,700*$2.10) | $12,210 |
| Pioze | $12,400 (2,000*$6.20) | $4,200 (2,000*$2.10) | $8,200 |
| $20,410 |
Percentage of joint costs to be allocated to L-Ten = 0%
Percentage of joint costs to be allocated to Triol = $12,210 / $20,410 = 59.8236%
Percentage of joint costs to be allocated to Pioze = $8,200 / $20,410 = 40.1764%
| Grades | Joint cost allocation |
| L-Ten | $0 ($12,300*0%) |
| Triol | $7,358 ($12,300*59.8236%) |
| Pioze | $4,942 ($12,300*40.1764%) |
| Total | $12,300 |
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A company manufactures three products, L-Ten, Triol, and Pioze,
from a joint process. Each production run costs $12,900. None of
the products can be sold at split-off, but must be processed
further. Information on one batch of the three products is as
follows:
Product
Gallons
Further Processing
Cost per Gallon
Eventual
Market
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L-Ten
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Further Processing
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