Question

Blasto, Inc., operates several mines. At one, a typical batch of ore run through the plant yields three products: lead, copper, and manganese. At the split-off point, the intermediate products cannot be sold without further processing. The lead from a typical batch sells for $62,000 after incurring additional processing costs of $23,000. The copper is sold for $113,000 after additional processing costs of $15,500, and the manganese yield sells for $71,000 but requires additional processing costs of $12,500. The joint costs of processing the raw ore, including the cost of mining, are $215,000 per batch. Required: Use the estimated net realizable value method to allocate the joint processing costs. (Do not round intermediate calculations.)

Answer 1

for lead = $ 43,000

for copper = $ 107500

for manganese = $ 63855

Step-by-step explanation:

Given:

joint cost of processing the raw ore = $ 215,000 per batch

For lead,

Selling cost = $ 62,000

Processing cost = $ 23,000

thus,

the net realizable value = $ 62,000 - $ 23,000 = $ 39,000

also,

For copper,

Selling cost = $ 113,000

Processing cost = $ 15,500

thus,

the net realizable value = $ 113,000 - $ 15,500 = $ 97,500

also,

For manganese,

Selling cost = $ 71,000

Processing cost = $ 12,500

thus,

the net realizable value = $ 71,000 - $ 12,500 = $ 58,500

Now,

the total net realizable value = $ 39,000 + $ 97,500 + $ 58,500

= $ 195,000

therefore,

the allocation weight = ( Net realizable value for the product ) / ( total net realizable value )

thus,

For lead, = $ 39,000 / $ 195,000 = 0.2

For copper = $ 97500 / $ 195,000 = 0.5

For manganese = $ 58000 / $ 195,000 = 0.297

hence, the cost allocation for the respective products will be calculated as

= the allocation weight × joint costs of processing

thus, for lead = 0.2 × $215,000 = $ 43,000

for copper = 0.5 × $215,000 = $ 107500

for manganese = 0.297 × $215,000 = $ 63855