ExpertHard1 markMultiple Choice
CPA · Question 13 · Area I: Business Analysis
A chemical company produces Product X and Product Y from a joint process. Joint costs are $100,000. <br/>- Product X: 5,000 gallons, Sales Value at split-off $15/gal. Separable costs to process further: $20,000. Final Sales Value: $22/gal.<br/>- Product Y: 2,000 gallons, Sales Value at split-off $40/gal. No further processing.<br/><br/>Using the Net Realizable Value (NRV) method, how much joint cost is allocated to Product X?
A chemical company produces Product X and Product Y from a joint process. Joint costs are $100,000. <br/>- Product X: 5,000 gallons, Sales Value at split-off $15/gal. Separable costs to process further: $20,000. Final Sales Value: $22/gal.<br/>- Product Y: 2,000 gallons, Sales Value at split-off $40/gal. No further processing.<br/><br/>Using the Net Realizable Value (NRV) method, how much joint cost is allocated to Product X?
Answer options:
A.
$48,387
B.
$52,941
C.
$60,000
D.
$46,429
How to approach this question
Calculate NRV for each product. NRV = Final Sales Value - Separable Costs. Calculate the proportion of each product's NRV to the Total NRV. Multiply that proportion by the Joint Costs.
Full Answer
B.$52,941✓ Correct
B
1. Calculate NRV for Product X: (5,000 units * $22) - $20,000 separable costs = $110,000 - $20,000 = $90,000.<br/>2. Calculate NRV for Product Y: 2,000 units * $40 = $80,000 (no separable costs).<br/>3. Total NRV = $90,000 + $80,000 = $170,000.<br/>4. Allocation to X = ($90,000 / $170,000) * $100,000 = $52,941.
Common mistakes
Using Sales Value at Split-off instead of NRV; forgetting to deduct separable costs for NRV.
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