Net Realizable Value Method, Decision to Sell at Split-off or Process Further
Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $50,000, and 15,000 units of overs and 35,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $20,000; unders, $19,900. Overs sell for $2.00 per unit; unders sell for $3.14 per unit.
Required:
1. Allocate the $50,000 joint costs using the estimated net realizable value method.
Allocated Joint Cost | |
Overs | $ |
Unders | $ |
2. Suppose that overs could be sold at the
split-off point for $1.80 per unit. Should Pacheco sell overs at
split-off or process them further?
Overs should not be processed further as there will be $
__________ more profit if sold at split-off.
1) | |||||
Overs | Unders | Total | |||
Sales revenue | $ 30,000 | $ 1,09,900 | $ 1,39,900 | ||
(15000*2) | (35000 units *3.14) | ||||
Less: Separable processing cost | 20000 | 19900 | |||
Net Realizable value | $ 10,000 | $ 90,000 | $ 1,00,000 | ||
Allocation of joint cost | |||||
Overs | $ 5,000 | ||||
($50000/100000*10000) | |||||
Unders | $ 40,000 | ||||
($50000/100000*90000) | |||||
2) | Net Realizable value | $ 10,000 | |||
Less: Slpit of point sales revenue | $ 27,000 | ||||
($1.8*15000) | |||||
Loss on further processing | $ -17,000 | ||||
Overs should not be processed further as there will be $17000 more profit if sold at split-off. | |||||
Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two...
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