Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 33

Net Realizable Value Method

A company processes a patented chemical, D-12, and produces two outputs, C-30 and C-40. In March, the costs to process D-12 are $450,000 for materials and $900,000 for conversion costs. C-30 has a sales value of $2,000,000 and C-40 has a sales value of $500,000.

Required

Using the net realizable value method, assign costs to C-30 and C-40 for March.

Step 1 of 3

Net realizable value method

Net realizable value is calculated as sales revenue less separable processing costs. Under this method, the joint costs are allocated to each of the product based on proportion of net realizable value of each product.