Question

I don't understand how to allocate costs by net realizable value, relative sizes value, and by weight. The question is one that you have online but it is obviously wrong! Could you please explain how to allocate? The question is :

The Parvis Paramount Pigsty (PPP) raises pigs, from which a variety of pork products are processed. The herd features the Danish Yorkshire, which typically reaches 105 kgs at maturity. The following table summarizes the production process of producing Porktry, Porfekt, and Porkatoo from one pig.

Previous research has indicated that raising a Danish Yorkshire from breeding to disposition costs an average of €3 per kg. The ratio of pig parts to products is relatively inflexible; as yet, bio-engineering has failed to produce pigs with other than four legs. Of the statements below, which is true of the allocation of the joint costs?

Weight in kgs: Porktry 45 Porfekt 20 Porkatoo 35

Sale Price, kg porktry 22.50 euros Porfekt 84.00 euros Porkatoo 28.00 euros

Processing costs per kg: Porktry 6.75 euros Porfekt 25.20 euros Porkatoo 7.00 euros

A. By weight, Porktry is allocated € 81.41

B. By relative sales value, Porkatoo is allocated € 80.05

C. Since Porktry is the least profitable product, it should be discontinued and resources devoted to Porfekt

D. By relative net realizable values, Porfekt is allocated € 135.09

E. None of the above

PLEASE DO NOT JUST GIVE ANSWER... Giving the answer isn't even necessary...just please explain how I allocate according to weight, relative sales value, and net realizeable values!

Thank you!

Answer 1

Joint cost = 105 * 3 = 315

Product = Porktry,Porkfekt,Porkatoo

(Note : INDIVIDUAL PRODUCT/TOTAL * 315 means for example 45/100 * 315 for weight or 708.75/2619.75 * 315 for each of the three products)

SR NO	ALLOCATION OF JOINT COSTS	PORKTRY	PORFEKT	PORKATOO	TOTAL
1.	WEIGHT	45	20	35	100
	ALLOCATION=INDIVIDUAL PRODUCT/TOTAL * 315	141.75	63	110.25	315
2.	SALE PRICE PER KG	22.5	84	28	-
	TOTAL SALES(WEIGHT*SALE PRICE)	1012.5	1680	980	3672.5
	ALLOCATION=INDIVIDUAL PRODUCT/TOTAL * 315	86.84	144.10	84.06	315
3.	NET REALIZABLE VALUE:-
	SALE PRICE PER KG	22.5	84	28	-
	LESS:PROCESSING COST PER KG	6.75	25.2	7	-
	NET REALIZABLE VALUE PER KG	15.75	58.8	21	-
	TOTAL NET REALIZABLE VALUE (NRV PER KG * WEIGHT)	708.75	1176	735	2619.75
	ALLOCATION=INDIVIDUAL PRODUCT/TOTAL * 315	85.22	141.40	88.38	315

Answer is E. None of the above