Blasto, Inc., operates several mines. At one, a typical batch of ore run through
ID: 2759816 • Letter: B
Question
Blasto, Inc., operates several mines. At one, a typical batch of ore run through the plant yields three products: lead, copper, and manganese. At the split-off point, the intermediate products cannot be sold without further processing. The lead from a typical batch sells for $90,000 after incurring additional processing costs of $42,000. The copper is sold for $130,000 after additional processing costs of $10,000, and the manganese yield sells for $110,000 but requires additional processing costs of $38,000. The joint costs of processing the raw ore, including the cost of mining, are $200,000 per batch. Required: Use the estimated net realizable value method to allocate the joint processing costs.Explanation / Answer
Solution:
Net Realizable Value Method
Under this method, from the sales value of the joint products (at finished stage) the followings are deducted:
The resultant figure so obtained is known as “Net Realisable Value” of joint product. The Joint Costs are apportioned in the ratio of Net Realizable Value.
Calculation of Net Realizable Value
Lead
Copper
Manganese
Sales Value after further processing
$90,000
$130,000
$110,000
Less: Additional Processing Cost
($42,000)
($10,000)
($38,000)
Net Realizable Value
$48,000
$120,000
$72,000
The Joint Costs $200,000 per batch are apportioned in the ratio of Net Realisation Value i.e. 48:120:72
Allocation of Joint Costs $200,000 in the Ratio of Net Realizable Value (48:120:72)
Cost Allocation
Lead
$40,000
Copper
$100,000
Manganese
$60,000
$200,000
Lead
Copper
Manganese
Sales Value after further processing
$90,000
$130,000
$110,000
Less: Additional Processing Cost
($42,000)
($10,000)
($38,000)
Net Realizable Value
$48,000
$120,000
$72,000
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