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

Exercise 53

Net Realizable Value of Joint Products

Toledo Chemical Company buys A-123 for $2.40 a gallon. At the end of distilling in Department 1, A-123 splits off into three products: B-1, B-2, and B-3. Toledo sells B-1 at the split-off point, with no further processing; it processes B-2 and B-3 further before they can be sold. B-2 is fused in Department 2, and B-3 is solidified in Department 3. Following is a summary of costs and other related data for the year ended June 30.

Department	(1) Distilling	(2) Fusing	(3) Solidifying
Cost of A-123	$288,000	-0-	-0-
Direct labor	72,000	$135,000	$195,000
Manufacturing overhead	60,000	63,000	162,000

Products	B-1	B-2	B-3
Gallons sold	45,000	90,000	135,000
Gallons on hand at year-end	30,000	-0-	45,000
Sales	$90,000	$288,000	$425,250

Toledo had no beginning inventories on hand at July 1 and no A-123 on hand at the end of the year on June 30. All gallons on hand on June 30 were complete as to processing. Toledo uses the net realizable value method to allocate joint costs.

Required

Compute the following:

a.The net realizable value of B-1 for the year ended June 30.

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b.The joint costs for the year ended June 30 to be allocated.

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c.The cost of B-2 sold for the year ended June 30.

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d.The value of the ending inventory for B-1.

Step 1 of 4

a.?$150,000

?Since there is no further processing for B-1 after split-off, the net realizable value is simply the sales value of all units produced.

Price per unit	=	$90,000		= $2.00
		45,000 units sold

?Units produced = 75,000 units (= 45,000 sold + 30,000 in ending inventory).

?Total net realizable value = $150,000 (= 75,000 units x $2.00)