Earl’s Hurricane Lamp oil company produces both A-1 Fancy and B Grade Oil. There are approximately $9000 in joint costs that Earl may allocate using the relative sales value at splitoff or the net realizable value approach. Before splitoff, A-1 sells for $20,000 while B grade sells for $40,000.After an additional investment of $10,000 after splitoff,$3000 for B grade and $7000 for A-1, both the products sell for $50,000.What is the difference in allocated costs for the A-1 product assuming applications of the net realizable value at splitoff approach?A-1 Fancy has $1,300 more joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.A-1 Fancy has $1,300 less joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.A-1 Fancy has $1,500 more joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.A-1 Fancy has $1,500 less joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.

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Asked Dec 17, 2019
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Earl’s Hurricane Lamp oil company produces both A-1 Fancy and B Grade Oil. There are approximately $9000 in joint costs that Earl may allocate using the relative sales value at splitoff or the net realizable value approach. Before splitoff, A-1 sells for $20,000 while B grade sells for $40,000.After an additional investment of $10,000 after splitoff,$3000 for B grade and $7000 for A-1, both the products sell for $50,000.What is the difference in allocated costs for the A-1 product assuming applications of the net realizable value at splitoff approach?

  1. A-1 Fancy has $1,300 more joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.
  2. A-1 Fancy has $1,300 less joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.
  3. A-1 Fancy has $1,500 more joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.
  4. A-1 Fancy has $1,500 less joint costs allocated to it under the net realizable value approach than the sales at splitoff approach.
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Expert Answer

Step 1

Joint cost is the cost of assembling, that is incurred by an organization on a joint creation process, in which multiple products are produced using common inputs.

Step 2

As per the difference between both the methods, the joint allocation cost of product A-1 is ...

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Joint cost- Net realizable value: Product type Sales value (A) Separable cost (B) A-1 Fancy 50,000 7,000 43,000 B grade oil 50,000 3,000 47,000 Total 100,000 10,000 90,000 Net Realizable value (A-B) Percent of NRV total Joint cost 47.7778% (43,000- 90,000) | 4,300 (9,000x47.7778%) 52.2223% (43,000= 90,000) 100% 9,000 4,700 (9,000x52.2223%) allocation under NRV method Sales value split off method Product type Sales at split-off A-1 Fancy 20,000 9000 x (20,000+60,000) =3,000 B grade oil 40,000 9000 × (40,000+60,000) =6,000 Total 60,000 9,000 Joint cost allocation

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