Question

Allocating Joint Costs Using the Net Realizable Value Method

A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,000. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:

Product		Gallons	Further Processing Cost per Gallon	Eventual Market Price per Gallon
L-Ten		3,000	$0.60	$2.20
Triol		3,500	0.90	4.90
Pioze		2,200	1.60	6.90

Required:

1. Allocate the joint cost to L-Ten, Triol, and Pioze using the net realizable value method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

	Joint Cost
Grades	Allocation
L-Ten	$
Triol
Pioze
Total	$

2. What if it cost $1.90 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to the three products? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

	Joint Cost
Grades	Allocation
L-Ten	$
Triol
Pioze
Total	$

Answer 1

1 ALLOCATION OF JOINT TO PRODUCTS

JOINT COST ALLOCATED =NET RELISABLE VALUE OF PRODUCT/ TOTAL NET RELISABLE VALUE*JOINT COST

NET RELISABLE VALUE =SALE PRICE -PROCSSING COST AFTER SPLIT OFF

L TEN

=(3000*2.20) -(3000*.60)

= 4800

TRIOL

3500*4.90)-3500*.90

=14000

PIOZE

=2200(6.90 -1.60)

=11600

TOTAL NET REALIZABLE VALUE =4800+14000+11600

=30400

JOINT COST ALLOCATION RATIO

=NRV OF PRODUCT/TOTAL NRV

LTEN =4800/30400

=.16

TRIOL =14000/304000

=.46

PIOZE =11600/30400

=.38

JOINT CST ALLOCATION

LTEN =.16*12000

=1920

PERCENTAGE =1920/12000*100

2 WHEN TRIOL PROCESSING COST TO 1.90

TRIOL NRV =4.90-1.90)*3500

10500

TOTAL NRV CHANGED TO

=26900

SO LTEN JOINT COST =4800/2600*12000

=2141

PERCENTA GE =18%

TRIOL =10500/26900*12000

4684

=39%

PIOZE =11600/26900*12000

5174

=43%

=16%

TRIOL =.46*12000 =5500

PERCENTAGE =46%

PIOZE =.38*12000

4560

PERCENTAGE =38