Garrison Co. produces three products — X, Y, and Z — from a joint process. Each

Question

Garrison Co. produces three products — X, Y, and Z — from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Last year all three products were processed beyond split-off. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Garrison's production policy follow.

The amount of joint costs allocated to product X using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Units Sales Value at If Processed Further Product Produced Split Off Sales Value Additional Costs X 6,000 $40,000 $80,000 $1,200 Y 3,000 15,000 40,000 3,000 Z 1,000 16,000 30,000 1,500

Explanation / Answer

Answer:

Net realisable value for product X = Sales if further processed - Additional cost

= 80,000 - 1,200 = $78,800

Total net realisable value for all products = NRV for X + NRV for Y + NRV for Z

= (80,000-1,200) + (40,000-3,000) + (30,000-1,500)

= 78,800 + 37,000 + 28,500 = $144,300

Therefore, Joint cost to be allocated to the product X =

NRV the Product

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= 78,800/144,300 * 120,000 = 0.546085 * 120,000 = $65,530

NRV the Product

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* Total Joint Costs NRV of Total Production

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