Problem:
(Approximated net realizable value method) Avignon Parfum Compagnie makes three products that can either be sold, or processed further and then sold. The cost associated with the Avignon joint process is $120,000.
|
|
Sales
|
Separate
|
Final
|
|
Units of
|
Prices at
|
Costs after
|
Sales
|
|
Product
|
Output
|
Split-Off
|
Split-Off
|
Price
|
|
Product 1
|
7,500
|
$3.00
|
$1.00
|
$4.25
|
|
Product 2
|
10,000
|
2.00
|
0.50
|
3.00
|
|
Product 3
|
12,500
|
2.00
|
0.75
|
3.00
|
Per unit, Product 1 weighs 3 ounces, Product 2 weighs 2 ounces, and Product 3 weighs 3 ounces. Assume that all additional processing is undertaken.
a. Allocate the joint cost based on the units of output, weight, and approximated net realizable values at split-off.
b. Assume all products are additionally processed and completed. At the end of the period, the inventories are as follows: Product 1, 500 units; Product 2, 1,000 units; Product 3, 1,500 units. Determine the values of the inventories based on answers obtained in part (a).