Question

Chem Manufacturing Company processes direct materials up to the split off point, where two products (X and Y) are obtained and sold. The following information was collected for the month of November.

Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)

Production:	X 5,000 litres	Y 4,500 litres
Sales:	X 4,750 at $150 per litre	Y 4,000 at $100 per litre

The cost of purchasing 10,000 litres of direct materials and processing it up to the split off point to yield a total of 9,500 litres of good products was $975,000.

The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected 300 litres of product X and 525 litres of product Y. October costs per unit were the same as November.

QUESTION: What is the approximate amount of joint costs in Product Y's ending inventory if the physical volume method is used and the company uses the FIFO inventory method?

	A)	$50,917
	B)	$60,285
	C)	$53,886
	D)	$67,358
	E)	$60,145

Answer 1

Answer:

Total physical volume at the split off point = 9,500 litres and

Cost to be apportioned is equal to $975,000. As a result, the cost apportioned to closing inventory of Product Y consisting of 525 litres is computed as follow

Cost apportioned = (Total cost/Total physical volume at the split off point)*Ending inventory of Product Y

= ($975,000/9,500 litres)*525 litres

= $53,886 (rounded off to the nearest)