Johnson Manufacturing Company buys Fluron for $0.80 per litre. At the end of processing in Department 1, Fluron splits off into products Alphon, Cryon, and Runon. Alphon is sold at the split-off point, with no further processing. Cryon and Runon require further processing before they can be sold. Cryon is processed in Department 2 and Runon is processed in Department 3. Following is a summary of costs and other related data for the year ended June 30, 20x5: There were no inventories on hand at July 1, 20x4, and there was no Fluron on hand at June 30, 20x5. All litres on hand at June 30, 20x5 were complete as to processing. Johnson uses the net realizable value method of allocating joint costs.
The joint costs for the year ended June 30, 20x5, to be allocated are:

Question

Johnson Manufacturing Company buys Fluron for $0.80 per litre. At the end of processing in Department 1, Fluron splits off into products Alphon, Cryon, and Runon. Alphon is sold at the split-off point, with no further processing. Cryon and Runon require further processing before they can be sold. Cryon is processed in Department 2 and Runon is processed in Department 3. Following is a summary of costs and other related data for the year ended June 30, 20x5:  There were no inventories on hand at July 1, 20x4, and there was no Fluron on hand at June 30, 20x5. All litres on hand at June 30, 20x5 were complete as to processing. Johnson uses the net realizable value method of allocating joint costs.
The joint costs for the year ended June 30, 20x5, to be allocated are:

Quizplus · Accepted Answer

The joint costs for the year ended June 30, 20x5 are the costs incurred up to the split-off point. In this case, the cost incurred by Johnson for buying Fluron at $0.80 per litre is the joint cost.

Total litres of Fluron produced = 620,000 litres 
Total joint costs incurred = $496,000

Using the net realizable value method, the joint cost allocated to Alphon is $0 as it is sold at the split-off point.

The net realizable value (NRV) for Cryon = Sales value - Separable cost = $4.80 - $2.20 = $2.60

The NRV for Runon = Sales value - Separable cost = $9.60 - $3.40 = $6.20

Total NRV = $45,000 + ($115,000 x $2.60/$8.80) + ($336,000 x $6.20/$8.80) = $45,000 + $32,954 + $237,818 = $315,772

Allocated joint cost = Joint cost x (NRV / Total NRV) = $496,000 x ($315,772 / $631,544) = $247,750

Therefore, the joint costs for the year ended June 30, 20x5, to be allocated are $120,250 (=$496,000-$247,750).

The correct answer is C.

Johnson Manufacturing Company Buys Fluron for $0