| Posted: 21 Aug 2007 at 03:12 | IP Logged
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Lane Co. produces main products Kul and Wu. The process also yields by-product Zef. Net realizable value of by-product Zef is subtracted from joint production cost of Kul and Wu. The following information pertains to production in July 2003 at a joint cost of $54,000:
|
Product |
Units produced |
Market value |
Additional cost
after split-off |
|
Kul |
1,000 |
1,000 |
$0 |
|
Wu |
1,500 |
1,500 |
0 |
|
Zef |
500 |
500 |
3,000 |
If Lane uses the net realizable value method for allocating joint cost, how much of the joint cost should be allocated to product Kul?
Answer C is correct. Net realizable value (NRV) is the predicted selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. The joint cost of $54,000 is reduced by the NRV of the by-product ($4,000) to get the allocable joint cost ($50,000). The computation is
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|
Sales value at split-off |
Weighting |
Joint costs allocated |
|
Kul |
$40,000 |
$40,000/$75,000 x $50,000 |
$26,667 |
|
Wu |
35,000 |
$35,000/$75,000 x $50,000 |
23,333 |
|
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$75,000 |
|
$50,000 |
Therefore, $26,667 of the joint cost should be allocated to product Kul.
This question is from Wiley, can someone please tell me where they got the sales value at split off figures from?
Thanks
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Topic: Net Realisable Value
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