(Approximated net realizable value method) The Scent of Money makes three products that can be sold at split off or processed further and then sold. The joint cost for April 2010 is $1,080,000.
|
|
Sales |
Separate |
|
|
|
Bottles of |
Price at |
Cost after |
Final Sales |
|
|
Product |
Output |
Split Off |
Split Off |
Price |
|
Perfume |
20,000 |
$7.00 |
$2.50 |
$16.50 |
|
Eau de toilette |
32,000 |
5.00 |
1.50 |
13.00 |
|
Body splash |
28,000 |
5.00 |
2.00 |
12.00 |
The number of ounces in a bottle of each product is: perfume, 1; eau de toilette, 2; and body splash, 3. Assume that all products are processed further after split off .
a. Allocate the joint cost based on the number of bottles, weight, and approximated net realizable values at split off. (Round to the nearest whole percentage.)
b. Assume that all products are processed further and completed. At the end of the period, the inventories are as follows: perfume, 600 bottles; eau de toilette, 1,600 bottles; and body splash, 1,680 bottles. Determine the values of the inventories based on answers obtained in (a). (Round per unit costs to the nearest cent.)
c. Do you see any problems with the allocation based on approximated net realizable value?