Heston, Inc. produces 2 main products and a by-product. During the current month it had no beginning inventories. During the current month it incurred $185,000 of joint costs, which are allocated to main products using the physical output method. Additional information follows: $\begin{array}{lrrr}
&\text { Units } & \text { Units } & \text { Unit Sales }\
\text { Product }&\text { Produced } &\text { Sold } & \text { Price }\
\hline\text { Able (main) } & 8,000 & 6,000 & \$ 15 \
\text { Baker (main) } & 12,000 & 8,000 & 22 \
\text { Delta (by-product) } & 5,000 & 4,500 & 2
\end{array}$ If Heston subtracts the NRV of by-product sales from joint costs at the time of by-product sales, what is the total value of the ending inventory?

Question

Quizplus · Accepted Answer

The total value of the ending inventory is calculated by first determining the joint cost allocation to the main products (Able and Baker) after subtracting the net realizable value (NRV) of the by-product (Delta) sales from the joint costs. The NRV of Delta sales is 4,500 units sold at $2 each, totaling $9,000. Subtract this from the total joint costs of $185,000 to get $176,000 as the adjusted joint costs. Using the physical output method, allocate these costs to Able and Baker based on their production units. The total units produced for Able and Baker are 8,000 and 12,000, respectively, totaling 20,000 units. The cost per unit is $176,000 / 20,000 = $8.80. For Able, the ending inventory is 2,000 units (8,000 produced - 6,000 sold) at $8.80 each, totaling $17,600. For Baker, the ending inventory is 4,000 units (12,000 produced - 8,000 sold) at $8.80 each, totaling $35,200. The total value of the ending inventory is $17,600 (Able) + $35,200 (Baker) = $52,800.

Heston, Inc If Heston Subtracts the NRV of By-Product Sales from Joint