Garden of Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run costs $50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be processed past the split-off point, incurring separable costs for Brights of $60 per unit and $40 per unit for Dulls. The market price is $250 for Brights and $200 for Dulls.
What is the amount of joint costs allocated to Brights using the net realizable value method?

Question

Quizplus · Accepted Answer

The net realizable value method is used to allocate joint costs based on the sales value of the products after further processing. The net realizable value for Brights is calculated as:
($250 - $60) x 250 = $47,500
The net realizable value for Dulls is calculated as:
($200 - $40) x 1,000 = $160,000
The total net realizable value for both products is $207,500.
To allocate the joint costs to Brights, we use the following formula:
Joint costs allocated to Brights = Total joint costs x (Net realizable value of Brights / Total net realizable value)
Joint costs allocated to Brights = $50,000 x ($47,500 / $207,500) = $11,446 (rounded to nearest dollar) 
Therefore, the best choice is (A) $11,446.

Garden of Eden Company Manufactures Two Products, Brights and Dulls