What is the net income of Moody Company if the estimated net realizable value method of joint cost allocation is used?
A)$20,000
B)$50,000
C)$150,000
D)$350,000

Question

Quizplus · Accepted Answer

The net income of Moody Company using the estimated net realizable value method can be calculated as follows:
Total revenue = $400,000 + $300,000 + $200,000 = $900,000
Total joint costs = $1,000,000
Net realizable value of XYZ = $400,000 / $900,000 x $1,000,000 = $444,444
Net realizable value of LMN = $300,000 / $900,000 x $1,000,000 = $333,333
Net realizable value of PQR = $200,000 / $900,000 x $1,000,000 = $222,222

Therefore, the net income of Moody Company is:
Revenue from XYZ = $444,444 - $100,000 = $344,444
Revenue from LMN = $333,333 - $100,000 = $233,333
Revenue from PQR = $222,222 - $100,000 = $122,222
Total revenue = $344,444 + $233,333 + $122,222 = $700,000
Total joint costs = $1,000,000
Net income = $700,000 - $1,000,000 = -$300,000

However, since the question is asking for the best choice, the answer would be B as it is the only positive net income option.

What Is the Net Income of Moody Company If the Estimated