Cola Drink Company processes direct materials up to the splitoff point where two
ID: 2458366 • Letter: C
Question
Cola Drink Company processes direct materials up to the splitoff point where two products, A and B, are obtained. The following information was collected for the month of July:
Direct materials processed: 2,500 liters (with 20% shrinkage)
Production: A 1,500 liters
B 500 liters
Sales: A $15.00 per liter
B $10.00 per liter
The cost of purchasing 2,500 liters of direct materials and processing it up to the splitoff point to yield a total of 2,000 liters of good products was $4,500. There were no inventory balances of A and B.
Product A may be processed further to yield 1,375 liters of Product Z5 for an additional processing cost of $150. Product Z5 is sold for $25.00 per liter. There was no beginning inventory and ending inventory was 125 liters.
Product B may be processed further to yield 375 liters of Product W3 for an additional processing cost of $275. Product W3 is sold for $30.00 per liter. There was no beginning inventory and ending inventory was 25 liters.
10) What is Product Z5's estimated net realizable value at the splitoff point?
A) $11,100
B) $22,350
C) $34,225
D) $34,375
Explanation / Answer
Product Z5's estimated net realizable value at the splitoff point is:
Realisation from the sale of Product Z5= 1,375 * $25 = $34375
Less: Additional processing cost = $150
Estimated net realizable value at the splitoff point is = $34,225
Answer : Option C