Question

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further

Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $60,000, and 15,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $20,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit.

Required:

1. Allocate the $60,000 joint costs using the estimated net realizable value method.

Allocated Joint Cost
Overs $
Unders $

2. Suppose that overs could be sold at the split-off point for $1.80 per unit. Should Pacheco sell overs at split-off or process them further?
Overs should not  be processed further as there will be $ _________more  profit if sold at split-off.

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Homework Answers

Answer #1

Calculate Joint Cost allocation

Sale value at after split off Processing Cost NRV Allocation
Overs 15000*2 = 30000 20000 10000 60000*10% = 6000
Unders 36000*3.14 = 113040 23040 90000 54000
Total 100000 60000

Calculate following

Sell after split 2
Sell at split off 1.80
Incremental price 0.20
Unit 15000
Incremental revenue 3000
Incremental cost -20000
Incremental profit (loss) -17000

Over should not be processed further as there will be $17000 more profit if sold at split off

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