(CMA)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: Department
1 2 3
Cost of Fluron $96,000
Direct labour $14,000 $45,000 $65,000
Manufacturing overhead $10,000 $21,000 $49,000
Product
Alphon Cryon Runon
Litres sold 20,000 30,000 45,000
Litres on hand at June 30, 20x5 10,000 - 15,000
Sales in dollars $30,000 $96,000 $141,750
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

Quizplus · Accepted Answer

The joint cost allocation method used is net realizable value, which means joint costs will be allocated based on the relative sales value of the products at the split-off point.

To calculate the net realizable value of each product, we need to subtract the additional processing costs from the sales value.

For Alphon, there are no additional processing costs, so the net realizable value is the same as the sales value: $30,000.

For Cryon, the additional processing costs in Department 2 are $45,000 (direct labor) + $21,000 (manufacturing overhead) = $66,000. So, the net realizable value is $96,000 - $66,000 = $30,000.

For Runon, the additional processing costs in Department 3 are $65,000 (direct labor) + $49,000 (manufacturing overhead) = $114,000. So, the net realizable value is $141,750 - $114,000 = $27,750.

The total net realizable value for all products is $30,000 + $30,000 + $27,750 = $87,750.

To allocate joint costs to each product, we need to calculate the proportion of the total net realizable value that each product represents.

For Alphon: $30,000/$87,750 x $96,000 = $32,821
For Cryon: $30,000/$87,750 x $96,000 = $32,821
For Runon: $27,750/$87,750 x $96,000 = $30,358

The total joint costs allocated to all products is $32,821 + $32,821 + $30,358 = $96,000.

Therefore, the answer is C) $120,000.

(CMA)Johnson Manufacturing Company Buys Fluron for $0