Wisconsin Milk and Ice Cream Manufacturing operates a single plant in Sun Prairi

Question

Wisconsin Milk and Ice Cream Manufacturing operates a single plant in Sun Prairie, Wisconsin. It manufactures milk and ice cream for retail and private label marketers in the Midwest.

Requirements:

Compute the Net Realizable Value (NRV) method.

Complete the Product Line Income statement for month ended June using the NRV Method

Joint costs Joint costs of processing raw milk Cream Liquid Skim Joint costs $                      1,000,000 [from 300,000 gallons of milk] Separable costs buttercream $                               600,000 Separable costs milk $                         500,000 Raw Milk is processed further to make Cream and Liquid Skim Cream is processed further to make Buttercream Liquid Skim is processed further to make Milk Cream Liquid Skim Buttercream Milk Beg Inventory (Gallons) 0 0 0 0 Production 100,000 150,000 90,000 125,000 Transfer 100,000 150,000 Sales in June 80,000 115,000 End inventory (Gallons) 10,000 10,000 Selling price per gallon 25 18 40 50 Required: 1). Compute the Net Realizable Value (NRV) Method 2). Compute the Product Line Income statement for month ended June using the NRV Method

Explanation / Answer

Net Realizable value = Sale value - Further processing cost

Here sale value should be taken for total production.

Question - 2

The Joint cost of 1000,000 to be shared between these two products using the NRV method. That means we use NRV ratio = 3000,000 : 5750,000 or 12 :23

Butter cream = 1000,000 * 12/35 = 342,857

Milk = 23 / 35 * 1000,000 = 657,143

Product line Income statement

Butter cream Milk Units Produced 90000 125000 Selling price 40 50 Sale value of production 3600000 6250000 (-) Further processing cost or separable cost (SC) 600000 500000 NRV = Sale value - S.C 3000000 5750000

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