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, and 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?
A) $21.67.
B) $31.20.
C) $40.00.
D) $42.00.

Question

Quizplus · Accepted Answer

The net realizable value (NRV) method allocates joint costs based on the proportion of each product's NRV to the total NRV. NRV for X is $3,000 (1,500 units * $2), for Y is $10,000 (2,500 units * $4), and for Z is $0. Total NRV is $13,000. The allocation for X is ($3,000/$13,000) * $5,200 = $1,200. The cost per unit of X is $1,200/1,500 = $0.80. The value of the ending inventory of 50 units of X is 50 * $0.80 = $40.00.

Products X, Y, and Z Are Produced from the Same