Question

PT TOBA produces two types of products both TAKO and TAKI through joint production process. Both products must be further processed and then it can be sold. In April 2016 the production cost incurred consisted of a prime cost of $ 10,000, a direct labor cost of $ 4,000 and a conversion cost of $ 14,000. The production process in April produced 500 units of TAKO and 2,000 TAKI units. The cost for further processing TAKO is $ 5 per unit and TAKI $ 10 per unit. The selling price of TAKO and TAKI per unit is $ 25 and $ 20.

Requested: During April 2016 has sold 400 units of TAKO and 1700 units of TAKI, using the NRV method, calculate the gross profit earned in April 2016.

Answer 1

Under the net realizable value method, we allocate the joint costs based on the (net sales value - seperable cost);

Calculation of Net Realizable Value	TAKO	TAKI
A. No. of Units produced	500	2,000
B. Selling Price	25	20
C. Total NRV of Production (A X B)	12,500	40,000
D. Seperable Costs per unit	5	10
E. Seperable Costs (D X B)	2,500	20,000
F. NRV of production (C-E)	10,000	20,000

Using the NRV of production we can allocate the total joint production costs:

Prime Cost	10000
Labor Cost	4000
Conversion Cost	14000
Total Joint Cost	28000

Allocation to TAKO = 28000 X (10000/30000) = $9333.33

Allocation to TAKI = 28000 X (10000/30000) = $18666.67

Total Cost of TAKO = $11833.33

Total Cost of TAKI = $38666.67

Cost per Unit of TAKO = 11833.33/500 = 23.66

Cost per Unit of TAKi = 38666.67/2000 = 19.33

Gross Profit can be Calculated as (Sales Value per Unit - Total Cost per Unit) X Sales Units

GP for TAKO = (25 - 23.66) X 400 = $533.33

GP for TAKI = (20 - 19.33) X 1700 = $1,133.33

Total Gross Profit = $1666.67