Question 7. A firm produces three items from a single process in batches containing 40 units A (a by-product), 100 units B, 100 units C. Separable costs and selling prices are:
Joint process costs are $30 000 per batch.
What is the amount of joint costs that would be allocated to B
using the net realisable value method, and treats by-product
revenue as a reduction of the cost of the principal products?
|
A. |
$7000 |
|
B. |
$7500 |
|
C. |
$15 000 |
|
D. |
$14 000 |
A. $120,000
B. $80,000
C. $84,000
D. $91,000
Homework Answers
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| Answer 7 | |||||
| Calculation of NRV | |||||
| Calculation of Joint cost: | Product A | Product B | Product C | Total (B and C) | Note |
| Sell price | 50.00 | 160.00 | 450.00 | A | |
| Units produced | 40.00 | 100.00 | 100.00 | B | |
| Sales value | 2,000.00 | 16,000.00 | 45,000.00 | C=A*B | |
| Less: Further processing costs | - | 4,000.00 | 9,000.00 | D | |
| NRV | 2,000.00 | 12,000.00 | 36,000.00 | 48,000.00 | E=C-D |
| Allocation rate (Product B and C) | 25.00% | 75.00% | 100.00% | F=E/Sum of E | |
| See F | G | H=F*G | |||
| Allocation on the basis of NRV | Allocation rate | Joint Cost less Product A | Allocation | ||
| Product B | 25.00% | 28,000.00 | 7,000.00 | ||
| Product C | 75.00% | 28,000.00 | 21,000.00 | ||
| Totals | 28,000.00 | ||||
| So correct answer is option A. | |||||
| Answer 8 | |||||
| Calculation of NRV | |||||
| Calculation of Joint cost: | Apple Juice | Apple Cider | Apple Pulp | Total | Note |
| Sell price | 0.70 | 1.50 | 3.50 | A | |
| Less: Further processing costs per unit | - | 0.66667 | 1.50 | B | |
| NRV per unit | 0.70 | 0.83333 | 2.00 | C=A-B | |
| Liters produced | 150,000.00 | 90,000.00 | 60,000.00 | D | |
| NRV | 105,000.00 | 74,999.70 | 120,000.00 | 299,999.70 | E=C*D |
| Allocation rate | 35.00% | 25.00% | 40.00% | 100.00% | F=E/Sum of E |
| See F | G | H=F*G | |||
| Allocation on the basis of NRV | Allocation rate | Joint Cost | Allocation | ||
| Apple Juice | 35.00% | 240,000.00 | 84,000.00 | ||
| Apple Cider | 25.00% | 240,000.00 | 60,000.00 | ||
| Apple Pulp | 40.00% | 240,000.00 | 96,000.00 | ||
| Totals | 240,000.00 | ||||
| So correct answer is option B. |
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