Question 1

A chemical company produces Product X and Product Y from a joint process. Joint costs are $100,000.
- Product X: 5,000 gallons, Sales Value at split-off $15/gal. Separable costs to process further: $20,000. Final Sales Value: $22/gal.
- Product Y: 2,000 gallons, Sales Value at split-off $40/gal. No further processing.

Using the Net Realizable Value (NRV) method, how much joint cost is allocated to Product X?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using Sales Value at Split-off instead of NRV; forgetting to deduct separable costs for NRV.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 3

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