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	$	720,000			0			0
Direct labor		180,000		$	337,500		$	487,500
Manufacturing overhead		150,000			157,500			405,000

Products	Beta-1			Beta-2			Beta-3
Gallons sold		180,000			360,000			540,000
Gallons on hand at year-end		120,000			0			180,000
Sales	$	225,000		$	720,000		$	1,063,125

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) As Beta-1 is sold at split off point, its net realizable value will be equal to total sales value of units produced.

Selling Price of Beta-1 per gallon = Total Sales/Total gallons sold

= $225,000/180,000 gallons = $1.25 per gallon

Total units of gallon produced = Units sold+Gallons at year end

= 180,000 gallons+120,000 gallons = 300,000 gallons

Net Realizable Value = 300,000 gallons*$1.25 per gallon = $375,000

Therefore the net realizable value of Beta-1 for the year ended November 30 is $375,000.

b) The joint cost is equal to the costs incurred up to the split off point (i.e. cost incurred in department 1 because only Beta 2 and Beta 3 are further processed in department 2 and department 3).

Joint Costs to be allocated = Cost of Alpha-11+Labor and Manufacturing Overhead cost in Dept 1

= $720,000+($180,000+$150,000) = $1,050,000

Therefore  joint costs to be allocated for the year ended November 30 is $1,050,000.

c) Firstly we need to allocate joint cost to Beta 2 in the ratio of net realizable value, for that net realizable value is calculated as follows:-

	Beta-1	Beta-2	Beta-3
Total Sale value	NA	720,000	1,417,500 (1,063,125*720,000/540,000)
Less: Further processing cost (in case of Beta 2 and Beta 3)	NA	495,000 (337,500+157,500)	892,500 (487,500+405,000)
Net Realizable value	375,000 (from part a)	225,000	525,000
Joint Costs allocated (1,050,000) (in the ratio of 375:225:525)	350,000 (1,050,000/1,125*375)	210,000 (1,050,000/1,125*225)	490,000 (1,050,000/1,125*525)

Cost of Beta-2 Sold = Joint cost allocated+Additional further processing cost in Dept 2

= $210,000+$495,000 = $705,000

Therefore the cost of Beta-2 sold for the year ended November 30 is $705,000.

d) Joint cost allocated to Beta-1 = $350,000

This amount of $350,000 is for total gallons of Beta-1 produced (i.e. 300,000 gallons).

Cost of Ending Inventory = $350,000*(180,000 gallons/300,000 gallons)

= $210,000

Therefore the value of the ending inventory for Beta-1 is $210,000.

Answer 2

a. 225,000

b.1,050,000

c. 885,000

d. 48,000