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Hi,
a product A (1,000 L) is processed as follow to produce four joint products B, C, K and L.
Process 1 (total costs 480$)
– further processing (500$) gives 400L of product B
– further processing (100$) gives 200L of product C
– further processing (400$) which gives product D (400L) at an interim stage. Then further processing (100$) gives 300L of product K whilst another further process (300$) gives 100L of product LThe selling price per litre of the final products is as follows:
Product B=5$, product C=3$, product K=2$ and product L=6$The question is produce a split of the joint costs using NRV. But I do not understand how to calcule lines if joint costs of D, and then joint cost of A.
The results show that joint cost of D for K is 250 and for L is 150. How do I get to this result?
Same for the joint costs of A, answer is 300 for B, 100 for C, 50 for K and 30 for L but I just do not manager to understand.
Could you please explain the details of the calculation?Thx a lot in advance
The net realisable value at the time it leaves the joint process is the final sales value less the cost of any further processing.
So for B, the final sales value if 400 x $5 = 2,000. The cost of the further processing is 500, so the NRV is 1500
For C, the final sales value is 200 x £3 = 600. The cost of the further processing is 100, so the NRV is 500.
For K, the final sales value is 300 x $2 = 600. The cost of further processing is 100. So the NRV is 500.
For D, the final sales value is the NRV of K of 500 and of L which is ((100 x 6) – 300), so a total of 800. The cost of further processing for D is 400, so the NRV is 400.So the total NRV for the first process is 2,400
So the joint cost for B is 1500/2400 x 480 = 300
For C it is 500/2400 x 480 = 100
For D it is 400/2400 x 480 = 80For K it is 500/800 x 80 = 50
For L it is 300/800 x 80 = 30Thanks a lot for this detailed explanation, was stuck on this for hours but understood the principle now! 🙂
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