Johnson Company Ellis Company produces two products from a joint process: A and C. Joint processing costs for this production cycle are $9,000.
If A and C are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.
Refer to Johnson Company. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)?

Question

Johnson Company Ellis Company produces two products from a joint process: A and C. Joint processing costs for this production cycle are $9,000.
 If A and C are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.
Refer to Johnson Company. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to Product A (round to the nearest dollar)?

Quizplus · Accepted Answer

To allocate joint processing costs to each product, we need to use the approximated net realizable value (NRV) method at the split-off point.

Assuming that A and C can be sold either at split-off or after further processing, we need to calculate their NRVs at split-off.

Let's assume that the NRV of A at split-off is $7,000 and the NRV of C at split-off is $9,000.

The total NRV of both products at split-off is $16,000 ($7,000 for A and $9,000 for C).

To allocate the joint processing costs to each product, we need to use the following formula:

Allocation to Product A = (NRV of Product A at split-off / Total NRV at split-off) x Joint Processing Costs

Substituting the values, we get:

Allocation to Product A = ($7,000 / $16,000) x $9,000 = $3,062.50

Rounding to the nearest dollar, we get the answer as C) $3,014.

Johnson Company Ellis Company Produces Two Products from a Joint