P 8-6 Joint Products, Inc. Joint Products, Inc., produces two joint products, X
ID: 2385736 • Letter: P
Question
P 8-6 Joint Products, Inc.Joint Products, Inc., produces two joint products, X and V, using a common input. These are produced in batches. The common input costs $8,000 per batch. To produce the final products (X and V), additional processing cost beyond the split-off pint must be incurred. There are no beginning inventories. The accompanying data summarize the operations.
Products
X
Y
Quantities produced per batch 200 lbs 400 lbs
Additional processing costs per batch
Beyond split-off $1,800 $3,400
Unit selling prices of completely
Processed products $40/lb. $10/lb
Ending inventory 2,000 lbs. 1,000 lbs.
Required:
a. Compute the full cost of the ending inventory using net realizable value to allocated joint cost.
b. If the selling prices at the split-off (before further processing) are $35 and $1 per pound of X and V, respectively, what should the firm do regarding further processing? Show calculations.
Explanation / Answer
(a) Joint cost per batch = $8000 Allocation to be done Net realisable value of Product X = 200lbs * $40/ Lbs = $8000 Net realisable value of Product Y = 400lbs * $10/ Lbs = $4000 Total realisable value = $12000 Allocation of joint cost to Product X = 8000/12000*8000 = $5333 for 200 lbs Allocation of joint cost to 1 lbs of Product X = $5333/ 200 lbs = $26.67/ lbs Allocation of joint cost to Product Y = 8000/12000*4000 = $2667 for 400 lbs Allocation of joint cost to 1lbs of Product Y = $2667/ 400 lbs = $6.67/ lbs Full cost of ending inventory Product X No of batches required to produce 2000 lbs of Product X = 2000/200 = 10 batches Joint cost = 2000 lbs * $26.67/ lbs = $53333 Processing cost beyond spliut off = 10 batches * 1800 = $18000 Total cost of Product X = 53333+18000 = $ 71333 answer Product Y No of batches required to produce 1000 lbs of Product Y = 1000/400 = 2.5 batches Joint cost = 1000 lbs * $6.67/ lbs = $6670 Processing cost beyond spliut off = 2.5 batches * 3400 = $8500 Total cost of Product X = 6670+8500 = $ 15170 answer (b) Product X = Cost per lbs post splitt off = 1800/ 200 = $9 Selling price at split off = $35 Then after processing split off selling price should be minoimum = 35 + 9 = $44 Since the post spit off price if $40, then the company shall not further process product X and should sell it for $35 answer Product Y = Cost per lbs post splitt off = 3400/ 400 = $8.5 Selling price at split off = $1 Then after processing split off selling price should be minoimum = 1 + 8.5 = $9.5 Since the post spit off price if $10, then the company should further process product Y and should sell it for $10 answer
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