Computing Joint Costs—Sales Value at Split-Off and Net Realizable Value Methods

Question

Computing Joint Costs—Sales Value at Split-Off and Net Realizable Value Methods

LeMoyne Manufacturing Inc.’s joint cost of producing 2,000 units of Product X, 1,000 units of Product Y, and 1,000 units of Product Z is $50,000. The unit sales values of the three products at the split-off point are Product X–$30, Product Y–$100, and Product Z–$90. Ending inventories include 200 units of Product X, 300 units of Product Y, and 100 units of Product Z. In your interim calculations, round sales value percentages to two decimal places and allocated joint cost to three decimal places.

1- Assume that Product Z can be sold for $120 a unit if it is processed after split-off at a cost of $10 a unit. Compute the amount of joint cost that would be included in the ending inventory valuation of the three products on the basis of their net realizable values.

(it is NOT asking for adjusted sales values).

Explanation / Answer

ReqA Joint cost Allocation on the basis of sales value at splitt off point Product X Product Y Product Z TOTAL Units Produced 2000 1000 1000 Sales Price per unit at Splitt off 30 100 90 Sales revenue at splitt off 60,000 10,000 90,000 160,000 Total Joint cost $ 50,000 (to be apportioned in sales revenue) 18750 3125 28125 50,000 (i.e in the ratio of 60:10:90) Total Apportioned joint cost 18750 3125 28125 50000 Number of units produced 2000 1000 1000 4000 Cost per unit 9.375 3.125 28.125 Ending inventory units 200 300 100 Value of Ending inventory at cost 1875 937.5 2812.5 5625 Req B: Joint cost allocation on the basis of net realizable value Selling price after further processing    $ 120 per unit Less: Further processing cost                    $ 10 per unit Net Realizable value                                     $ 110 per unit Product X Product Y Product Z TOTAL Units Produced 2000 1000 1000 Sales Price at splitt off 30 100 Net realizable value 110 Sales revenue 60000 10000 110000 180,000 Total Joint cost $ 50,000 (to be apportioned in sales revenue) 16666.67 2777.78 30555.56 50,000 (i.e in the ratio of 60:10:110) Joint cost per unit 8.33 2.78 30.56 Ending inventory units 200 300 100 Value of Ending Inventory 1666 834 3056 5556

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