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. 0.76 points (2) Fusing (3) Solidifying Department Cost of Alpha-11 Direct labor Manufacturing overhead (1) Distilling $714,000 171,000 150,000 $342,000 164,000 $492,000 404,000 eBook Beta-2 372,000 2 Doa Products Gallons sold Gallons on hand at year-end Sales Beta-1 186,000 123,000 $651,000 Beta-3 558,000 184,000 $3,348,000 Print $2,232,000 References 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. Round your final answer to the nearest whole dollar amount.) d. The value of the ending inventory for Beta-1. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) a. Net realizable value of Beta-1 Joint costs C. Cost of Beta-2 sold d. Ending inventory for Beta-1

Answer 1

Further Processing Cost for Beta 2 = $342000 + $164000 = $506,000 Further Processing Cost for Beta 3 = $492000 + $404000 = $896000 Total Joint Cost = Cost of Distilling Department = $714000 + $171000 + $150000 = $1035000

Computation of Net Realizable Value and allocation of Joint Cost 4. Particulars Beta 1 Beta 2 Beta 3 5 Sales Value (A) 6510001 2232000 3348000 Gallons Sold (B) 186000 3720001 558000 7 Sale price per gallon (C) (A/B) 3.51 8 Closing inventory of Gallons (D) 123000 0 184000 9 Production of Gallons (E ) (B+D) 3090001 372000 742000 10 Estimated Sales value of production (F) (E*C) 1081500 2232000 4452000 11 Further Processing Cost (G) 5060001 896000 12 Net Realizable Value (H) (F-G) 10815001726000 3556000 13 Allocation of Joint Cost 14 (Total Joint Cost * NRV for product / Total NRV) 175902.02 280727.587 578370.394 15

Formula :
Beta 1 651000 186000 =B5/B6 123000 Beta 2 2232000 372000 =C5/C6 Beta 3 3348000 558000 =D5/D6 184000 =B6+B8 =B9*B7 =C6+C8 =C9*C7 506000 =C10-C11 =D6+D8 =D9*D7 896000 =D10-D11 0 =B10-B11 =(1035000*B12)/(B12+C12+D12) =(1035000*С12)/(B12+C12+D12) =(1035000*D12)/(B12+C12+D12

From above workings: a. Net realizable value for Beta 1 = $1081500 b. The Joint Cost to be allocated = $1035000 c. Total cost of Beta 2 Sold = $280727.59 + $506000 = $786727.59 d. Value of ending inventory for Beta 1: Sale Value = 123000 * 3.5 = $430500 Cost of ending inventory = 175902.02 /309000*123000 = $70019.26