QUESTIONS: 1. What is the gross profit for September under the Net Realizable Va
ID: 2526350 • Letter: Q
Question
QUESTIONS:
1. What is the gross profit for September under the Net Realizable Value method?
2. What is the gross profit for September under the Manufacturing Cost Reduction method?
3. What is the total inventory value at 9/30 under the Net Realizable Value method?
4. What is the total inventory value at 9/30 under the Manufacturing Cost Reduction method?
Problem A Almond Delights is an almond grower. They have two primary products Premium Almonds and Choice Almonds. One acre of almond trees yields about 600 pounds of Premium and 1,400 pounds of Choice almonds at a cost of $6,000. Apound of Premium Almonds can be sold for $6.68. A pound of Choice can besold for $4.28. Almond Delights further processes the 1,400 pounds of Choice almonds into 175 gallons of All Natural Almonod Butter at an additional cost of $2,500. All Natural Almond Butter is sold for $40 pergallon. The 400 pounds of Premium Almonds is further processed into 450 pounds of Chocolate Almond Delights at an additional cost of $900. Each pound of Chocolate Almond Delights is sold for $12.Explanation / Answer
Total seawater desalinated = 326,000 Gallons
Cost = $97,500
Net Realizable Value Method
Sales Value of produced water = 325,000 X 0.75 = 243,750
Sales Value of produced salt = 10,000 X 0.5 = 5,000
Under Net Realizable Value Method
The Total Joint Cost of 97,500 would be allocated as:
Water = 97,500 X 243,750/248,750 = 95,540.2
Cost per Gallon of Water = 95,540.2/325,000 = $0.2940
Salt = 97,500 X 5,000/248,750 = 1,959.8
Cost per Pount of Salt = 1,959.8/10,000 = 0.19598
Based on the Above the Gross Profit can be calculated as (SP - Cost) X Sales Units
Water = (0.75 -0.2940) X 300,000 = 136,809.05
Salt = (0.5 - 0.19598) X 6,500 = 3,040.2
Question 1: Total Gross Profit under Net realizable Value = $139,849.25
Question 3: Value of Inventory = (25,000 X 0.2940) + (3,500 X 0.19598) = 8,035.18
Manufacturing Cost Reduction Method
The Total Cost is 97,500
Net Cost = Total Cost - Byproduct NRV = 97,500 - (10,000 X 0.5) - 92,500
Unit Cost = 92,500/325,000 = 0.284615
Question 2: Gross Profit = 300,000 X (0.75 - 0.284615) = 139,615.4
Question 4: Value of inventory = 25,000 X 0.284615 = 7,115.385