A production process has joint costs of $12,000 for the input of 1,000 kgs of material.
Two products are produces from this:
Product A: 600 kgs. Selling price = $25/unit. Separate costs = $4,000
Product B: 400 kgs. Selling price = $40/unit. Separate costs = $7,000
Calculate the inventory value of the production using
(a) Weigh to apportion the joint costs
(b) Net realisable value to apportion the joint costs
Please help me
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joint costs
4y ago#1(a) The weights of the two final products are 600kg and 400kg, so the joint cost of $12,000 would be split 6:4 between A and B ie 7,200 to 4,800. The inventory values are therefore:
A 7,200 + 4,000 = 11,200
B 4,800 + 7,000 = 11,800
(b) NRV at split off = final selling value less all further costs of completion (Ie the separate costs)
NRV A = 600 x $25 - 4,000 = 11,000
NRV B = 400 x $40 - 7,000 = 9,000
The joint costs are therefore split 11:9 or 11/20 and 9/20, so for A $6,600 and for B 5,400
Inventory values: A 6,600 + 4,000 = 10,400
B 5,400 + 7,000 = 12,400
Note that in both cases total inventory value = $23,000, the sum of all the input costs (12,000 + 4,000 + 7,000)
Also, as inventory is valued at the lower of cost and NRV, we should check that the sales values are not less than the costs. Sales value of A = 600 x 25 = 15,000 and for B = 400 x 40 = 16,000. These are both higher than the costs calculated above so the inventory costs calculated above will be the inventory values.
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