Question

Net Realizable Value Method, Decision to Sell at Split-off or Process Further

Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $50,000, and 14,000 units of overs and 35,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $19,900. Overs sell for $2.00 per unit; unders sell for $3.14 per unit.

Required:

1. Allocate the $50,000 joint costs using the estimated net realizable value method.

	Allocated Joint Cost
Overs	$
Unders	$

2. Suppose that overs could be sold at the split-off point for $1.80 per unit. Should Pacheco sell overs at split-off or process them further?
Overs   be processed further as there will be $   profit if sold at split-off.

Answer 1

Answer
Product	Units	Selling price	Total Sales	Separable Costs	NRV	Allocated Joint Cost
Overs	14000	2	$        28,000	$              18,000	$        10,000	$                      5,000
Unders	35000	3.14	$      109,900	$              19,900	$        90,000	$                    45,000
Total					$      100,000	$                    50,000
If sold at split off, proceeds = 1.80*14,000 = $25,200
Which is higher than NRV
Overs should not be processed further as there will be $ 15,200 more profit if sold at split off