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. Department (1) Distilling (2) Fusing (3) Solidifying Cost of Alpha-11 $712,000 Direct labor 172,000 $344,000 $491,000 Manufacturing 140,000 160,000 410,000 overhead 0 Products Gallons sold Gallons on hand at year-end Sales Beta-1 182,000 127,000 $728,000 Beta-2 364,000 O $2,184,000 Beta-3 546,000 190,000 $3,276,000 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. Net realizable value of Beta-1 b. The joint costs for the year ended November 30 to be allocated. Joint costs c. The cost of Beta-2 sold for the year ended November 30. (Do not round Intermediate calculations.) Cost of Beta-2 sold d. The value of the ending inventory for Beta-1. (Do not round intermediate calculations.) Ending inventory for Beta-1

Answer 1

Davenport Company a.Since there is no further processing for Beta 1 after split off, the net realizable value is simply the sales value of all units produced Price per unit 728000 182000 4 Units produced Total net realizable value 309000 x 4 $1236000 =309000 (182000+127000) b.The joint costs to be allocated are all costs up to split off, that is all costs in Department 1 Costs of Alpha - 11 712000 Direct Labour 172000 Overhead 140000 Total 1024000 c.Cost of Beta 2 Net realizable value of Beta - 1 1236000 Net realizable value of Beta 2 1680000 Net realizable value of Beta 3 3515000 Total 6431000 Beta 2 2184000 344000 160000 1680000 Beta 3 (3276000/546000) x 736000 491000 - 410000 $3515000 Allocation of joint costs to Beta 2 (1680000 6431000) x 1024000 267504 Additional processing costs Direct Labour 344000 Overhead 160000 Total cost of Beta 2 771504 d.Using information from c above, the allocation to Beta 1 is: (1236000/ 6431000) x 1024000 196807 Cost per unit= 196807/ 309000 $0.64 Cost of ending inventory 127000 x $0.64 $81280 -