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joint costs

Forums › FIA Forums › MA2 Managing Costs and Finance Forums › joint costs

  • This topic has 1 reply, 2 voices, and was last updated 7 months ago by Ken Garrett.
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  • July 6, 2022 at 1:34 pm #660070
    Pthlg
    Member
    • Topics: 2
    • Replies: 0
    • ☆

    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

    July 7, 2022 at 7:02 am #660096
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10197
    • ☆☆☆☆☆

    (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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