Chapter 16, Problem 16.20MCQ

Earl’s Hurricane Lamp Oil Company produces both A-1 Fancy and B Grade Oil. There are approximately $9,000 in joint costs that Earl may allocate using the relative sales value at splitoff or the net realizable value approach. Before splitoff, A-1 sells for $20,000 while B grade sells for $40,000. After an additional investment of $10,000 after splitoff, $3,000 for B grade and $7,000 for A-1, both the products sell for $50,000. What is the difference in allocated costs for the A-1 product assuming applications of the net realizable value and the net realizable value at splitoff approach?

1. 1. A-1 Fancy has $1,300 more joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
2. 2. A-1 Fancy has $1,300 less joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
3. 3. A-1 Fancy has $1,500 more joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.
4. 4. A-1 Fancy has $1,500 less joint costs allocated to it under the net realizable value approach than the sales value at splitoff approach.