Question

Northern Company processes 100 gallons of raw materials into 75 gallons of product GS-50 and 25 gallons of GS-80. GS-50 is further processed into 50 gallons of product GS-505 at a cost of $16,000, and GS-80 is processed into 50 gallons of product GS-805 at a cost of $13,000. Exhibit 1 depicts this manufacturing flow. The production process starts at point 1. A total of $42,000 in joint manufacturing costs are incurred in reaching point 2. Point 2 is the split-off point of the process that manufactures GS-50 and GS-80. At this point, GS-50 can be sold for $575 a gallon, and GS-80 can be sold for $115 a gallon. The process is completed at point 3—products GS-505 and GS-805 have a sales price of $764 a gallon and $371 a gallon, respectively.

EXHIBIT 1 Joint Cost Flows for Northern Company Point 1 Point 2 Separable Processing Cost Point 3 — $5,000 → 75 gallons of GS-50 Price = $300/gallon 50 gallons of GS-505 Price = $500 100 gallons of raw material processed at a cost of $20,000 25 gallons of GS-80 Price = $60/gallon - $2,000 — 50 gallons of GS-805 Price = $140

Required:

Allocate the joint product costs and then compute the cost per unit using each of the following methods: (1) physical measure, (2) sales value at split-off, and (3) net realizable value. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

Answer 1

Answer with working is given below

Cheese 75 25 | 1 Joint cost allocated based on Physical measures Butter Units- Litres Units- Litres 75.00% Joint Cost allocated $31,500 Cost per unit $420 Total 100 100% $42,000 25.00% $10,500 $420 GS-80 Total 100 75 2 Allocation based on Sales value at split off point GS-50 Units Selling price per gallon at Split off point $575.00 Total Sales Value at Split off point $43,125 Sales value % 93.75% Joint Cost allocated $39,375 Cost per unit $525.00 $46,000 $115.00 $2,875 6.25% $2,625 $105.00 100% $42,000 3 Allocation based on Net Realisable Value Total 100 Final Sales Units- GS-505 and GS-805 Final Selling price per gallon Final Sales Value Less: Further processing costs Net Realisable value NRV % Joint cost allocated based on NRV Cost per unit GS-50 50 $764 $38,200 $16,000 $22,200 80.00% $33,600 $448.00 GS-80 50 $371 $18,550 $13,000 $5,550 20.00% $8,400 $336.00 $56,750 $29,000 $27,750 100% $42,000 Please note in above case NRV is lower than Joint cost based on data given in question