Question

odl X + ENSA 2 pending x SACC613%20Q5-6.pdf Kitty Enterprises manufactures cat food from a single process in Department 1 to produce two main products Chewy and Munch and a by-product Bites. Chewy is processed further in Department 2, Munch in Department 3 and the by-product Bites n Department 4. After allowing for selling expense of 10% and a profit of 10% on sales, the net value of Bites is credited to the joint process in Department 1. Production volumes for May and the sale prices of each product are shown below. The costs for the period are: Department 1 (Joint Process) Department 2 (Chewy) Department 2 (Munch) Department 4(By-Product Bites) $147,600 11,500 8,300 400 Production for the period is: Chewy Munch Bites 15,000 kgs 25,000 kgs 3,250 kgs The selling prices are: Chewy Munch Bites $9.00 per kg $6.00 per kg $1.50 per kg Closing inventory is : Chewy Munch Bites 750 kgs 3,725 kgs 87.5 kgs There are no opening inventory balances in any of the departments Required: (a) Calculate the unit cost (round to 2 decimal places) of each product using the estimated net realisable value method. (b) Value closing inventory (round to the nearest whole dollar)

Answer 1

(a) Computation of Unit Cost of Products

Particulars		Chewy	Munch
Production (Kg's)	(A)	15000	25000
Costs:
Department 1 :
Chewy (143100*46.57%)		66641.67
Munch (143100*53.43%)			76458.33
Department 2		11500
Department 3			8300
	(B)	78141.67	84758.33
Cost/ Kg	(B/A)	5.21	3.39

(b) Value of Closing Inventories

Particulars		Chewy	Munch	Bites
Closing Stock		750	3725	87.5
Cost/Kg		5.21	3.39	1.2
Value of Closing Inventories		3907.5	12627.75	105

Working Notes:

WN.1 Calculation of Net Realizable Value

The net realizable value method allocates joint costs on the basis of the final sales value less separable costs.

Particulars		Chewy	Munch
Production (Kg's)	(A)	15000	25000
Selling Price/Kg	(B)	9	6
Final Sales Value of goods produced	(A*B)	135000	150000
Less: Separable Costs:
Department 2		11500
Department 3			8300
Department 4
Net Realisable Value		123500	141700
NRV (%)		46.57%	53.43%

WN.2 Computation of amount to be credited in Joint process 1

Bites
Production (Kg's)		3250
Selling Price/Kg		1.5
		4875
Less: Profit on Sales @ 10%		487.5
Cost of Sales		4387.5
Less: Selling Expense @ 10%		487.5
		3900

Therefore, New Cost for Department 1 will be 143100 (147000-3900)