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 gross profit for Brights assuming the net realizable value method is used?

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Quizplus · Accepted Answer

The net realizable value (NRV) method allocates joint costs based on the final sales value minus any additional processing costs after the split-off point. First, calculate the NRV for each product:- Brights: $250 \times $250 = $62,500$ (sales value) - $250 \times $60 = $15,000$ (additional processing) = $47,500 NRV.- Dulls: $1,000 \times $200 = $200,000$ (sales value) - $1,000 \times $40 = $40,000$ (additional processing) = $160,000 NRV.Total NRV = $47,500 (Brights) + $160,000 (Dulls) = $207,500.Allocate joint costs ($50,000) based on the proportion of each product's NRV to the total NRV:- Brights: $\frac{$47,500}{$207,500} \times $50,000 = $11,446$ (approximate joint cost allocation).Gross profit for Brights = Sales value - Separable costs - Allocated joint costs:- Gross profit = $62,500 (sales value) - $15,000 (separable costs) - $11,446 (allocated joint costs) = $36,054.

Garden of Eden Company Manufactures Two Products, Brights and Dulls