Question

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $60,000, and 14,000 units of overs and 37,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $26,180. Overs sell for $2.00 per unit; unders sell for $3.14 per unit. Required: 1. Allocate the $60,000 joint costs using the estimated net realizable value method. Allocated Joint Cost Overs $ 6,000 Unders $ 54,000 2. Suppose that overs could be sold at the split-off point for $1.80 per unit. Should Pacheco sell overs at split-off or process them further? Overs should not be processed further as there will be $ 25,200 more profit if sold at split-off.

Answer 1

overs 16,470

unders 43,529.51

Over's should not be process further

Step-by-step explanation:

`\left[\begin{array}{cccc}Product&realizable value&Weight&Cost\\overs&28,000&0.27451&16,470.59\\unders&74,000&0.72549&43,529.41\\Total&102,000&1&60,000\\\end{array}\right]`

we get the sales revenue of each product and wegithed

Then we apply this to the joint cost to get each product cost

Differential analysis:

`\left[\begin{array}{cccc}&Raw&Further&Differential\\Sales&66600&74000&7400\\Joint-cost&-43526&-43529&0\\Further cost&&-18000&-18000\\Total Cost&43529&61529&-18000\\Gross Profit&23070&12471&-10600\\\end{array}\right]`

we should not process further as the ifferential revenue is negative we earn more by selling at split off