The Moody Company produced three joint products at a joint cost of $100,000.Two of these products were processed further.Production and sales were: 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

The Moody Company produced three joint products at a joint cost of $100,000.Two of these products were processed further.Production and sales were:  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.

Quizplus · Accepted Answer

Under the estimated net realizable value method, the joint cost is allocated based on the expected sales value at the split-off point. The net realizable values for the three products are:
Product A: $100,000 - $30,000 = $70,000
Product B: $80,000 - $20,000 = $60,000
Product C: $50,000 - $10,000 = $40,000
The joint cost allocated to each product is:
Product A: $100,000 * ($70,000 / ($70,000 + $60,000 + $40,000)) = $38,636
Product B: $100,000 * ($60,000 / ($70,000 + $60,000 + $40,000)) = $33,636
Product C: $100,000 * ($40,000 / ($70,000 + $60,000 + $40,000)) = $18,182
The total cost of production for products A and B is $38,636 + $33,636 = $72,272. The total sales revenue for products A and B is $80,000 + $60,000 = $140,000. Therefore, the net income is $140,000 - $72,272 = $67,728.
However, product C is not included in the net income calculation because it is not processed further and is sold immediately at the split-off point. Its revenue of $50,000 less its allocated joint cost of $18,182 gives a net income of $31,818. Thus, the total net income of Moody Company is $67,728 + $31,818 = $99,546, which is closest to option B.

The Moody Company Produced Three Joint Products at a Joint