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 $20,000, and GS-80 is processed into 50 gallons of product GS-805 at a cost of $17,000. Exhibit 1 depicts this manufacturing flow. The production process starts at point 1. A total of $50,000 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 $675 a gallon, and GS-80 can be sold for $135 a gallon. The process is completed at point 3-products GS-505 and GS-805 have a sales price of $860 a gallon and $455 a gallon, respectively. 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.) GS-50 GS-80 Total (1) Physical measure (2) Sales value at split-off (3) Net realizable value

Answer 1

			Amount $
	GS-50	GS-80	Total
(1.)	37,500	12,500	50,000
(2.)	46,875	3,125	50,000
(3.)	40,000	10,000	50,000

Working:
	GS-50	GS-80	Total
(1.)	=50000*75/100	=50000*25/100	50,000
(2.)	=(50000*(675*75))/((675*75)+(135*25))	=(50000*(135*25))/((675*75)+(135*25))	50,000
(3.)	=50000*((860*50)-20000)/(((860*50)-20000)+((455*50)-17000))	=50000*((455*50)-17000)/(((860*50)-20000)+((455*50)-17000))	50,000