Question

Fletcher Fabrication, Inc., produces three products by a joint production process. Raw materials are put into production in Department X, and at the end of processing in this department, three products appear. Product A is sold at the split-off point with no further processing. Products B and C require further processing before they are sold. Product B is processed in Department Y, and product C is processed in Department Z. The company uses the estimated net realizable value method of allocating joint production costs. Following is a summary of costs and other data for the quarter ended June 30. No inventories were on hand at the beginning of the quarter. No raw material was on hand at June 30. All units on hand at the end of the quarter were fully complete as to processing. Products Pounds sold Pounds on hand at June 30 Sales revenues AB 22,000 62,000 69,000 48,000 0 39,000 $ 51,700 $ 297,600 $379,500 $ Departments Raw material cost Direct labor cost Manufacturing overhead х $ 163,000 71,000 30,000 Y 0 92,000 31,300 $ 0 282,500 102,000 Required: a. Determine the following amounts for each product: (1) estimated net realizable value used for allocating joint costs, (2) joint costs allocated to each of the three products, (3) cost of goods sold, and (4) finished goods inventory costs, June 30. b. Assume that the entire output of product A could be processed further at an additional cost of $5.70 per pound and then sold for $12.20 per pound. Compute the incremental income from further processing A. c. Considering the results of part b, should the company process product A further? Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine the following amounts for each product: (1) estimated net realizable value used for allocating joint costs, (2) joint costs allocated to each of the three products, (3) cost of goods sold, and (4) finished goods inventory costs, June 30. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.) Product Estimated Net Realizable Values Joint Costs Cost of Goods Sold Ending Inventory Product A Product B Product C Total < Required A Required B >

Answer 1

A) 1) Calculation of Net Realizable Value (Amounts in $)

Products	A	B	C
a) Pounds sold	22,000	62,000	69,000
b) Pounds on hand at June 30	48,000	0	39,000
c) Total Pounds Produced (a+b)	70,000	62,000	108,000
d) Sales revenues	51,700	297,600	379,500
e) Sale price per pound (d/a)	2.35	4.80	5.50
f) Total Sales Value for pounds produced (e*c)	164,500	297,600	594,000
g) Further Direct Labor cost (Dept Y and Z)	0	92,000	282,500
h) Further manufacturing overhead (Dept Y and Z)	0	31,300	102,000
i) Net Realizable Value (f-g-h)	164,500	174,300	209,500

2) The joint cost is equal to the costs incurred up to the split off point (i.e. cost incurred in department X because only Product B and Product C are further processed in department Y and department Z).

Joint Costs to be allocated = Cost of Product A+Labor and Manufacturing Overhead cost in Dept X

= $163,000+($71,000+$30,000) = $264,000

Therefore joint costs to be allocated for the quarter ended June 30 is $264,000.

This joint cost of $264,000 will be allocated to each product in the ratio of net realizable value.

Allocation of Joint Costs (Amounts in $)

Products	A	B	C	Total
i) Net Realizable value	164,500	174,300	209,500	548,300
ii) % of NRV [(i/548,300)*100]	30.00182%	31.78917%	38.20901%	100%
ii) Joint Costs allocated (264,000*ii)	79,205	83,923	100,872	264,000

3) Calculation of Cost of Goods Sold (Amounts in $)

Products	A	B	C
a) Joint Cost allocated	79,205	83,923	100,872
b) Direct labor cost (Further)	0	92,000	282,500
c) Manufacturing Overhead cost (Further)	0	31,300	102,000
d) Total cost of pounds produced (a+b+c)	79,205	207,223	485,372
e) Pounds produced	70,000	62,000	108,000
f) Cost per pound (d/e)	1.1315	3.34231	4.494185
g) Total Pounds Sold	22,000	62,000	69,000
h) Total cost of goods sold (f*g)	24,893	207,223	310,099

4) Calculation of Cost of Ending Inventory (Amounts in $)

Products	A	B	C
i) Cost per pound	1.1315	3.34231	4.494185
ii) Pounds on hand at June 30	48,000	0	39,000
iii) Total cost of ending inventory (i*ii)	54,312	0	175,273