The Doe Company sells three products: sliced pineapples, crushed pineapples, and pineapple juice. The pineapple juice is a by-product of sliced pineapple, while crushed pineapples and sliced pineapples are produced simultaneously from the same pineapple. Some pineapple slices break, and these are used to make crushed pineapple.
The production process is as follows:
1. A total of 100,000 pounds of pineapples is processed at a cost of $120,000 in Department 1. Twenty percent of the pineapples’ weight is scrap and is discarded during processing. Twenty percent of the processed pineapple is crushed and transferred to Department 2. The remaining is transferred to Department 3.
2. In Department 2, a further cost outlay of $15,000 is required to pack the crushed pineapple. Here a further 10 percent is lost in processing. The packed product is sold at $3 a pound.
3. In Department 3, the material is processed at a total additional cost of $40,000. Thirty percent of the processed pineapple turns into juice and is sold at $0.50 a pound after $3,500 is incurred as selling costs. The remaining 70 percent is transferred to Department 4.
4. Department 4 packs the sliced pineapple into tins. Costs incurred here total $25,000.The cans are then ready for sale at $4.00 a pound.
Required:
Prepare a schedule showing the allocation of the processing cost of $120,000 between crushed and sliced pineapple using the net realizable value method. The net realizable value of the juice is to be added to the sales value of the sliced pineapples.
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