Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pa
ID: 2342524 • Letter: N
Question
Net Realizable Value Method, Decision to Sell at Split-off or Process Further
Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $60,000, and 14,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit.
Required:
1. Allocate the $60,000 joint costs using the estimated net realizable value method.
2. Suppose that overs could be sold at the split-off point for $1.80 per unit. Should Pacheco sell overs at split-off or process them further?
Overs be processed further as there will be $ profit if sold at split-off.
Explanation / Answer
Overs
Unders
units
14000
36000
Price
2
3.14
units*price
28000
113040
separable
18000
23040
Difference
10000
90000
1.Ans:
Thus the cost of $60,000 allocated in overs $6000 (=60,000 * 10,000/100,000)
and unders 54,000 (60,000 * 90,000/100,000)
The allocated joint cost= Overs-$6000
Unders-$54000
2. Suppose that overs could be sold at the split-off point for $1.80 per unit. Should Pacheco sell overs at split-off or process them further?
Overs be processed further as there will be $ profit if sold at split-off.
Without processing further there would be a realisation of profits of $12075 thus could be sold at the split-off point for $1.80 per unit.
Particulars
Overs
Unders
Number of units
14000
36000
Selling price per unit
$ 1.80
$ 3.14
Sales value
$ 25,200.00
$ 113,040.00
Minus costs
$ -
$ 23,040.00
Net realizable value
$ 25,200.00
$ 90,000.00
joint cost allocation
$ 13125
$ 46875
Profit
$ 12075
$ 43125
Overs
Unders
units
14000
36000
Price
2
3.14
units*price
28000
113040
separable
18000
23040
Difference
10000
90000