(Joint products; by product) Valley Mangoes runs a fruit packing business in southern California. The firm buys mangoes by the truckload in season. The fruit is then separated into three categories according to its condition. Group 1 is suitable for selling as is to supermarket chains and specialty gift stores. Group 2 is suitable for slicing and bottling in light syrup to be sold to supermarkets. Group 3 is considered a by product and is sold to another company that processes it into jelly. The firm has two processing departments: (1) Receiving and Separating and (2) Slicing and Bottling.
A particular truckload cost the company $1,500 and yielded 1,500 mangoes in Group 1, 2,000 mangoes in Group 2, and 500 mangoes in Group 3. The labor to separate the fruit into categories was $300, and the company uses a predetermined overhead application rate of 50 percent of direct labor cost. Only Group 2 has any significant additional processing cost, estimated at $220, but each group has boxing and delivery costs as follows:
|
Group 1 |
$150 |
|
Group 2 |
220 |
|
Group 3 |
50 |
The final sales revenue of Group 1 is $3,000, of Group 2 is $1,500, and of Group 3 is $450.
a. Determine the sum of the material, labor, and overhead costs associated with the joint process.
b. Allocate the total joint cost using the approximated net realizable value at split off method, assuming that the by product is recorded when realized and is shown as other income on the income statement.
c. Prepare the entries for parts (a) and (b) assuming that the by product is sold for $450 and that all costs were incurred as estimated.
d. Allocate the total joint cost using the approximated net realizable value at split off method, assuming that the by product is recorded using the net realizable value approach and that the joint cost is reduced by the net realizable value of the by product.
e. Prepare the entries for parts (a) and (d), assuming that the estimated realizable value of the by product is $400.