Chapter 11, Problem 61P

a.

To determine

Calculate the net realizable value of Beta-1 for the year ended November 30.

Answer to Problem 61P

The net realizable value for Beta-1 is $375,000.

Explanation of Solution

Net realizable value method:

Net realizable value method is used to allocate the cost in the proposition of their net realizable market value at the split-off point. If the product can be sold at the split-off point then the selling price of that product at a split-off point is used as the base for the calculation of cost allocation.

Calculate the net realizable value for Beta-1:

$\begin{array}{c}\text{Net realizable value = Units produced }\times \text{ Price per unit}\\ \text{= 300,000 (1) }\times \text{ \$1}\text{.25 (2)}\\ \text{= \$375,000}\end{array}$

Thus, the net realizable value for Beta-1 is $375,000.

Working note 1:

Calculate the unit produced for Beta-1:

$\begin{array}{c}\text{Units produced = Units sold +}\text{}\text{ Ending inventory}\\ \text{= 180,000 + 120,000}\\ \text{=300,000}\end{array}$

Working note 2:

Calculate the price per unit for Beta-1:

$\begin{array}{c}\text{Price per unit = }\frac{\text{Sales value}}{\text{Units sold}}\\ =\frac{\$225,000}{180,000}\\ =\text{ \$1}\text{.25}\end{array}$

There is no further processing for the Beta-1, so the sales value at the split-point should be used.

b.

To determine

Calculate the joint costs for the year ended November 30 to be allocated.

Answer to Problem 61P

The joint cost for the year ended November 30 is $1,050,000.

Explanation of Solution

Cost allocation:

Cost allocation is the process of distributing the common cost of the production and service rendered to the various departments of the business. It is used to calculate the actual cost attributed to a specific department.

Calculate the joint cost for the year ended November 30:

Particulars	Amount
Cost of alpha-11	$720,000
Direct labor	$180,000
Manufacturing overhead	$150,000
Total joint costs	$1,050,000

Table: (1)

The joint cost will consider all the costs to the split-off point.

Thus, the joint cost for the year ended November 30 is $1,050,000.

c.

To determine

Calculate the cost of Beta-2 sold for the year ended November 30.

Answer to Problem 61P

The total cost of the Beta-2 is $705,000.

Explanation of Solution

Cost allocation:

Cost allocation is the process of distributing the common cost of the production and service rendered to the various departments of the business. It is used to calculate the actual cost attributed to a specific department.

Calculate the cost allocation of Beta-2:

Particulars	Amount
Allocation to Beta-2(3)	$210,000
Direct labor	$337,500
Manufacturing overhead	$157,500
Total cost of Beta-2	$705,000

Table: (2)

Thus, the total cost of the Beta-2 is $705,000.

Working note 3:

Calculate the joint cost allocation to Beta-2:

$\begin{array}{c}\text{Allocation to Beta-2 = }\frac{\text{NRV of Beta-2}}{\text{Total NRV}}\times {\rm T}o\text{tal joint costs}\\ \text{= }\frac{\$225,000}{\$1,125,000\text{ (4)}}\times \text{ \$1,050,000}\\ \text{= \$210,000}\end{array}$

Working note 4:

Calculate the total net realized value of the company:

Particulars	Amount
Net realizable value of Beta-1	$375,000
Net realizable value of Beta-2	$225,000(5)
Net realizable value of Beta-3	$525,000(6)
Total net realized value	$1,125,000

Table: (3)

Working note 5:

Calculate the net realizable value of Beta-2:

Particulars	Amount
Sales value	$720,000
Less: direct labor	$337,500
Less: manufacturing overhead	$157,500
Net realized value	$225,000

Table: (4)

Working note 6:

Calculate the net realized value of Beta-3:

Particulars	Amount
Sales value	$1,417,500(7)
Less: direct labor	$487,500
Less: manufacturing overhead	$405,000
Net realized value	$525,000

Table: (5)

Working note 7:

Calculate the sales value of Beta-3:

$\begin{array}{l}\text{Sales value = }\frac{\text{Sales value }}{\text{Units sold (Beta-3)}}\times \text{ Units sold (Beta-3) + Units sold (Beta-1)}\\ \text{= }\frac{\text{\$1,063,125}}{540,000}\times \left(540,000\text{ + 180,000}\right)\\ =\$1,417,500\end{array}$

d.

To determine

Calculate the value of the ending inventory for Beta-1.

Answer to Problem 61P

The value of ending inventory is $140,000 for Beta-1.

Explanation of Solution

Ending inventory:

Ending inventory unit is the units lying in the store due to its-non issuance in the current period. Ending inventory for the current period is the beginning inventory for the next period.

Calculate the ending inventory for Beta-1:

$\begin{array}{c}\text{Ending inventory = Ending inventory (units) }\times \text{ Cost per unit}\\ \text{= 120,000 }\times \text{ \$1}\text{.66 (9)}\\ \text{= \$140,000}\end{array}$

Thus, the value of ending inventory is $140,000.

Working note 8:

Calculate the units of ending inventory (unit):

$\begin{array}{c}\text{cost of Beta-1 = }\frac{\text{NRV of Beta-1}}{\text{Total NRV}}\times \text{ Total costs of Alpha-11}\\ \text{= }\frac{\begin{array}{c}\$225,000\end{array}}{\begin{array}{c}\$1,125,000\end{array}}\times \$1,050,000\\ =\text{ \$350,000}\end{array}$

Working note 9:

Calculate the units of ending inventory ($):

$\begin{array}{c}\text{Ending inventory (\$) = }\frac{\text{Cost of Beta-1 }}{\text{Units produced }}\\ =\frac{\$350,000}{300,000}\\ =\text{ \$1}\text{.66}\end{array}$