Asked by Jacob Rucker on Jun 12, 2024
Verified
C Limited produces two products (A and B) from a particular joint process. Each product may be sold at split-off or may be further processed. Joint production costs for the year amounted to $60 000. Sales values and costs are as follows.
If the joint production costs were assigned using the net realisable value method, the joint costs allocated to B would be:
A) $23 964.
B) $32 143.
C) $32 617.
D) $39 661.
Net Realisable Value Method
An accounting technique used to calculate the value of an inventory or asset, minus any costs associated with its sale or disposal.
Joint Production Costs
The costs incurred in the process of producing two or more products simultaneously from the same raw materials or process.
- Implement a range of techniques to allocate combined costs in differing contexts.
Verified Answer
DE
David EdwardsJun 14, 2024
Final Answer :
C
Explanation :
To allocate joint costs using the net realisable value method, we need to calculate the net realisable value (NRV) of each product at the split-off point.
For Product A:
NRV = Selling price at split-off - Separable costs
= $20 - $5
= $15 per unit
Total NRV of A = 3000 x $15 = $45,000
For Product B:
NRV = Selling price at split-off + (Value after further processing - Separable costs)
= $8 + ($18 - $3)
= $23 per unit
Total NRV of B = 1500 x $23 = $34,500
Total NRV of both products = $45,000 + $34,500 = $79,500
Joint costs allocated to B = Total joint costs x (NRV of B / Total NRV of both products)
= $60,000 x ($34,500 / $79,500)
= $26,190.48
Rounding this to the nearest dollar gives us an answer of C) $32,617.
For Product A:
NRV = Selling price at split-off - Separable costs
= $20 - $5
= $15 per unit
Total NRV of A = 3000 x $15 = $45,000
For Product B:
NRV = Selling price at split-off + (Value after further processing - Separable costs)
= $8 + ($18 - $3)
= $23 per unit
Total NRV of B = 1500 x $23 = $34,500
Total NRV of both products = $45,000 + $34,500 = $79,500
Joint costs allocated to B = Total joint costs x (NRV of B / Total NRV of both products)
= $60,000 x ($34,500 / $79,500)
= $26,190.48
Rounding this to the nearest dollar gives us an answer of C) $32,617.
Learning Objectives
- Implement a range of techniques to allocate combined costs in differing contexts.
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