Webster Company produces 20,000 units of product A, 15,000 units of product B, a

Question

Webster Company produces 20,000 units of product A, 15,000 units of product B, and 18,500 units of product C from the same manufacturing process at a cost of $425,000. A and B are joint products, and C is regarded as a by-product. The unit selling prices of the products are $40 for A, $30 for B, and $2 for C. None of the products require separable processing. Of the units produced, Webster Company sells 13,000 units of A, 14,000 units of B, and 18,500 units of C. The firm uses the net realizable value method to allocate joint costs and by-product costs. Assume no beginning inventory. (Do not round intermediate calculations.) Required: 1. What is the value of the ending inventory of product A? Ending inventory 2. What is the value of the ending inventory of product B? Ending inventory

Explanation / Answer

Working Note 1

Total Joint cost to allocate = Manufacturing cost - Sales of By product C

= $425,000 - (18,500 units * $2) = $388,000

Working Note 2

Total NRV for Product A & Product B = (20,000 units * $40) + (15,000 units *$30) = $800,000 +$450,000

= $1,250,000

Allocation of Joint Cost to Product A = ($800,000 / $1,250,000) * $388,000 = $248,320

Joint Cost per unit for A = $248,320 / 20,000 units = $12.416

Allocation of Joint Cost to Product B = ($450,000 / $1,250,000) * $388,000 = $139,680

Joint Cost per unit for B = $139,680 / 15,000 units = $9.312

Answer

Ending Inventory Value of Product A = Ending Inventory * Joint Cost per unit for A

= (20000 - 13000) * $12.416 = $86,912

Ending Inventory Value of Product B = Ending Inventory * Joint Cost per unit for B

= (15000 - 14000) * $9.312 = $9,312

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