1.
Ascertain the joint cost to be allocated to the products under the relative sales value method.
1.
Explanation of Solution
Compute the sales value at split off:
| Particulars | Smooth | Silken | Total |
| Production | 80,000 | 120,000 | |
| (×) Sales Price | $2.40 | $3.90 | |
| Sales value of production | $432,000 | $468,000 | $900,000 |
Table (1)
Compute the percentage of net realizable value:
Product Smooth:
Silken:
Allocate the joint costs:
| Particulars | Smooth | Silken | Total |
| Allocation percentage | 48% | 52% | |
| Allocated joint costs | $201,600 | $218,400 | $420,000 |
Table (2)
2.
Ascertain the joint cost to be allocated to the products under the physical measure method.
2.
Explanation of Solution
Compute the cost to be allocated under physical measure method:
| Particulars | Smooth | Silken | Total |
| Production | 180,000 | 120,000 | 300,000 |
| Allocation percentage | 60% | 40% | |
| Allocated joint costs | $252,000 | $168,000 | $420,000 |
Table (3)
Compute the percentage of net realizable value:
Product Smooth:
Silken:
3.
Ascertain the joint cost to be allocated to the products under the net realizable value method.
3.
Explanation of Solution
Compute the net realizable value:
| Particulars | Smooth | Silken | Total |
| Production (A) | 180,000 | 120,000 | |
| (×) Sales Price (B) | $2.40 | $3.90 | |
| Sales value of production (A×B) | $432,000 | $468,000 | $900,000 |
| Individual separable cost (C) | $1.40 | $0.90 | |
| Less: Separable costs (A×C) | $252,000 | $108,000 | $360,000 |
| Net Realizable Value (NRV) | $180,000 | $360,000 | $540,000 |
Table (4)
Compute the percentage of net realizable value:
Product Smooth:
Silken:
Allocate the joint costs:
| Particulars | Smooth | Silken | Total |
| Allocation percentage | 33.33% | 66.67% | |
| Allocated joint costs | $140,000 | $280,000 | $420,000 |
Table (5)
4.
Ascertain the joint cost to be allocated to the products under the physical measure method.
4.
Explanation of Solution
Compute the cost to be allocated under physical measure method:
| Particulars | Smooth | Silken | Total |
| Production | 180,000 | 120,000 | 300,000 |
| Allocation percentage | 60% | 40% | |
| Allocated joint costs | $252,000 | $168,000 | $420,000 |
Table (6)
Compute the percentage of net realizable value:
Product Smooth:
Silken:
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Chapter 7 Solutions
Cost Management: A Strategic Emphasis
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