Recyclers, Inc. reprocesses paper and obtains 2 main products: a by-product and a waste. By-product revenues are treated as a reduction in joint costs. During the period 1,000 tons were processed at a cost of $12,000 for materials and processing, resulting in the following: Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Main-1 200 $4,000 $2,000 $10,000
Main-2 400 5,000 6,000 12,000
By-product 300 2,000 -0- 2,000
Waste 100 -0- -0- -0-
If the firm allocates joint costs to the main products using the net realizable value, how much will be allocated to Main-1?
A)$5,000
B)$5,714
C)$6,857
D)$6,000

Question

Quizplus · Accepted Answer

To find the joint cost allocation for each main product using the net realizable value method, we need to calculate the total separable sales value after further processing for both main products.

For Main-1:
Separable sales value after further processing = $2,000 + $10,000 = $12,000
Net realizable value = $10,000/$12,000 = 0.8333
Joint cost allocated to Main-1 = 0.8333 x $12,000 = $10,000

For Main-2:
Separable sales value after further processing = $6,000 + $12,000 = $18,000
Net realizable value = $12,000/$18,000 = 0.6667
Joint cost allocated to Main-2 = 0.6667 x $12,000 = $8,000

Therefore, the joint cost allocated to Main-1 is $10,000, which is answer choice B.