Bonanza Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows: $\begin{array}{lrrrr}
&&\text { PRODUCTS }\
&\mathrm{X} & \mathrm{Y} & \mathrm{Z} & \text { TOTAL }\
\text { Units produced } & 20,000 & 20,000 & 10,000 & 50,000 \
\text { Joint costs } & ? & ? & ? & \$ 262,000 \
\text { Sales value at split-off } & \$ 300,000 & \$ 150,000 & \$ 10,000 & \$ 460,000
\end{array}$ Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were
A) $75,000.
B) $100,800.
C) $150,000.
D) $168,000.

Question

Quizplus · Accepted Answer

The net realizable value method allocates joint costs based on the proportion of the sales value at split-off. First, reduce the total joint costs by the sales value of the by-product Z: $262,000 - $10,000 = $252,000. Then, calculate the proportion for product X: $300,000 / ($300,000 + $150,000) = 2/3. Finally, allocate the joint costs to product X: 2/3 * $252,000 = $168,000.

Bonanza Co Joint Costs Were Allocated Using the Net Realizable Value Method