Question

LM Enterprises produces two products in a common production process, each of which is processed further after the split-off point. Joint costs incurred for the current month are $36,000. The following information for the current month was also gathered: Product Units Produced Units Sold Separable Costs Selling Price per Unit L 10,000 9,500 $20,000 $ 8 M 5,000 4,000 $40,000 20 What amount would be the joint cost allocated to product M, assuming that LM Enterprises uses the estimated net realizable value method to allocate costs

Answer 1

$18,000

Step-by-step explanation:

The computation is shown below

As we know that

Net realizable value = eventual sales price - separable costs.

For Product L, the net realizable value is

= (10,000 units ×$8) - $20,000

= $80,000 - $20,000

= $60,000

For Product M, the net realizable value is

= (5,000 units ×$20) - $40,000

= $100,000 - $40,000

= $60,000

Now Net realizable value of the two products is

= $60,000 + $60,000

= $120,000

Product M is allocated 60 ÷ 120 or 50% of joint costs.

So,

= 50% of $36,000

= $18,000