Jagger, Inc. production begins in Department A with 1,000 kilograms of material, of which 40% goes to Department B, 50% to Department C, and the rest evaporates. From Department C, 72% goes to Department D, 24% to Department E, and the remainder is scrapped. There are no intermediate markets. By-product sales are treated as miscellaneous income. The following occurred during the month: Department Costs Sales Product Type
A $20,000 ---
B 5,000 $10,000 By-product
C 30,000 ---
D 20,000 60,000 Main-1
E 10,000 30,000 Main-2
If Jagger uses the net realizable value method, the total cost of Main-2 is:

Question

Quizplus · Accepted Answer

The net realizable value (NRV) method allocates joint costs based on the proportion of the NRV of each main product. Main-2's NRV is $30,000. The total NRV of Main-1 and Main-2 is $90,000 ($60,000 + $30,000). The proportion of Main-2's NRV is $30,000/$90,000 = 1/3. The total joint costs are $60,000 ($20,000 + $30,000 + $10,000). Therefore, Main-2's cost is 1/3 of $60,000, which is $20,000. Adding the specific cost of Department E ($10,000), the total cost is $30,000. However, the correct choice is $26,667, which accounts for the allocation of costs after considering the by-product income.