Question

Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?

Answer 1

$40

Step-by-step explanation:

Final sales value of total production:

Product X = Pounds of raw material × Selling price

= $1500 × 2

= $3,000

Product Y = Pounds of raw material × Selling price

= $2,500 × 4

= $10,000

Product Z = $0

Total = $13,000

Net Realizable Value at split-off point:

= Final sales value of product X + Final sales value of product Y

= $3,000 + $ 10,000

= $ 13,000

Weighting :

Product X = Final sales value of product X ÷ Net Realizable Value at split-off point

= 3000 ÷ 13000

= 0.23

Product Y = Final sales value of product X ÷ Net Realizable Value at split-off point

= 10,000 ÷ 13000

= 0.77

Product Z = 0

Joint cost allocated:

Product X = Weight of product X × Total cost

= 0.23 × $ 5200

= $ 1,196

Product Y = Weight of product Y × Total cost

= 0.77 × $ 5200

= $ 4,004

Allocated cost per pound :

Product X = Joint cost allocated ÷ Pounds of raw material

= 1,196 ÷ 1,500

= $ 0.8/pound

Product Y = Joint cost allocated ÷ Pounds of raw material

= 4,004 ÷ 2,500

= $ 1.6/pound

Therefore, the value of ending inventory is as follows:

= Allocated cost per pound of product X × ending inventory of X

= $ 0.8/pound × 50

= $40