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 production, what is the total cost of goods sold for the current month?

Question

Quizplus · Accepted Answer

To find the total cost of goods sold, we need to calculate the cost of the main products first:

- Using the physical output method, we need to allocate the joint costs to the main products based on their relative physical output. Let's assume that Product 1 has a physical output of 60% and Product 2 has a physical output of 40%.

- Joint costs allocated to Product 1: $185,000 x 60% = $111,000 
- Joint costs allocated to Product 2: $185,000 x 40% = $74,000

- Total cost of Product 1: $111,000 
- Total cost of Product 2: $74,000

Now, we need to take into account the NRV of the by-product:

- Let's assume that the NRV of the by-product is $62,500.

- We need to subtract the NRV of the by-product from the joint costs at the time of by-product production: $185,000 - $62,500 = $122,500.

- This gives us the total cost of goods sold for the current month:

Total cost of goods sold = Total cost of Product 1 + Total cost of Product 2 - NRV of by-product 
= $111,000 + $74,000 - $62,500 
= $122,500

Therefore, the best choice is C.

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