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.

Requirements:

Compute the Net Realizable Value (NRV) method.

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

Follow the instructions on the Data tab of the worksheet. Show all calculations within the cells of the Excel spreadsheet. This means that you must use formulas and links so that your thought process can be examined. You must also include a detailed explanation of each journal entry that you make or do not make on each date to convey your thought process. There should be no hard coding of solutions.

	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

Allocation of joint costs using net realizable value method							Buttercream	Milk	Total
Final sales value							$                      3,600,000	$                               6,250,000	$       9,850,000
Deduct separable costs							600,000	500,000	$       1,100,000
Net realizable Value at splitoff point							3,000,000	5,750,000
Weighting
Joint costs Allocation
Production Costs per Gallon
Number Produced
Production Costs per Gallon

Product line income statement using net realizable method
							Buttercream	Milk	total
Revenues
costs of goods sold
	joint costs
	separable costs
	production costs
	ending inventory
cost of goods sold
Gross margin
Gross margin %

Answer 1

Allocation of joint costs using net realizable value method
	Buttercream	Milk	Total
Final sales value	3600000	6250000	9850000
Deduct separable costs	600000	500000	1100000
Net realizable Value at split off point	3000000	5750000	8750000
Weighting (Net realizable Value at split off point of product / total Net realizable Value at split off point)	34.2857%	65.7143%	100.0000%
Joint costs Allocation (based on above weighted)	342857	657143	1000000
Separate cost	600000	500000
Allocated joint costs	342857	657143
Product cost	942857	1157143
Number Produced (in gallons)	90000	125000
Production Costs per Gallon	10.47619	9.257143
Production Costs per Gallon	10.47619	9.257143
Inventory in gallons	10000	10000
Ending inventory in value (Production Costs per Gallon / inventory in gallons)	104762	92571

Product line income statement using net realizable method
	Buttercream	Milk	Total
Revenues	3600000	6250000	9850000
Costs of goods sold
Joint costs	342857	657143	1000000
Separable costs	600000	500000	1100000
Production costs	942857	1157143	2100000
Ending inventory	-104762	-92571	-197333
Costs of goods sold	1780952	2221714	4002667
Gross margin	1819048	4028286	5847333
Gross margin in % (Gross margin / Revenues)	50.5291%	64.4526%	59.3638%