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Two Products G and H are created from a joint process. G can be sold immediately after split-off. H requires further processing into product HH before it is in a saleable condition. There are no opening inventories and no working in progree G, H or HH. The following for last period:
$
Total joint product costs 350,000
Further processing costs of product H 66,000Product Production Closing Inventory
unitsG 420,000 20,000
HH 330,000 30,000Using the physical unit method of apportioning joint production costs, What was the cost value of the closing inventory of product HH for last period?
Answer:
Joint costs apportioned to H: ((330,000/420,000 + 330,000))*350,000 =$150,000
Closing Inventory valuation (HH): (30,000/330,000)*(154,000 + 66,000) = $20,000Sir John,
Can you please explain how they calculate the closing inventory? why they did (30,000/330,000)*(154,000 + 66,000) = $20,000Thank You
There is a typing error in the first line under ‘answer’. It equals $154,000 and not $150,000.
This is the cost of the production of H in the joint process. A further $66,000 is spent turning it into HH, which means the total cost of the HH production of 330,000 units is $154,000 + $66,000 = $220,000.
The closing inventory is 30,000 out of the 330,000 units produced and is therefore
30,000/330,000 x $220,000 = $20,000.
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