Product A is processed further in the salting department at a cost of $27,000. It yields 12,000 pounds ofsalted peanuts, which are sold for $12 per pound.Product B (raw peanuts) is sold without further processing at $3 per pound.Product C is considered a byproduct and is processed further in the paste department at a cost of$12,000. It yields 16,000 pounds of peanut butter, which are sold for $6 per pound.The company wants to make a gross margin of 10% of revenues on product C and needs to allow 20% ofrevenues for marketing costs on product C. An overview of operations follows:- Separable Costs -Joint Costs$180,000Salting DepartmentProcessing$27,000Salted Peanuts12,000 pounds12,000pounds$12/lbRaw PeanutsPeanuts DepartmentProcessingof 150,000 lb65,000pounds$3/lbPeanut ButterPaste DepartmentProcessing16,00016,000 poundspounds$6/lb$12,000SplitoffPoint 1. Compute unit costs per pound for products A, B, and C, treating Cas a byproduct. Use the NRV method forallocating joint costs. Deduct the NRV of the byproduct produced from the joint cost of products A and B.2. Compute unit costs per pound for products A, B, and C, treating all three as joint products and allocat-ing joint costs by the NRV method.Required

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Asked Dec 18, 2019
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Joint costs and byproducts. (W.Crum adapted) Royston,Inc., is a large food processing company. It processes 150,000 pounds of peanuts department at a cost of $180,000 to yield 12,000 pounds of product A, 65,000 pounds of product B, and 16,000 pounds of product C.

Product A is processed further in the salting department at a cost of $27,000. It yields 12,000 pounds of
salted peanuts, which are sold for $12 per pound.
Product B (raw peanuts) is sold without further processing at $3 per pound.
Product C is considered a byproduct and is processed further in the paste department at a cost of
$12,000. It yields 16,000 pounds of peanut butter, which are sold for $6 per pound.
The company wants to make a gross margin of 10% of revenues on product C and needs to allow 20% of
revenues for marketing costs on product C. An overview of operations follows:
- Separable Costs -
Joint Costs
$180,000
Salting Department
Processing
$27,000
Salted Peanuts
12,000 pounds
12,000
pounds
$12/lb
Raw Peanuts
Peanuts Department
Processing
of 150,000 lb
65,000
pounds
$3/lb
Peanut Butter
Paste Department
Processing
16,000
16,000 pounds
pounds
$6/lb
$12,000
Splitoff
Point
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Product A is processed further in the salting department at a cost of $27,000. It yields 12,000 pounds of salted peanuts, which are sold for $12 per pound. Product B (raw peanuts) is sold without further processing at $3 per pound. Product C is considered a byproduct and is processed further in the paste department at a cost of $12,000. It yields 16,000 pounds of peanut butter, which are sold for $6 per pound. The company wants to make a gross margin of 10% of revenues on product C and needs to allow 20% of revenues for marketing costs on product C. An overview of operations follows: - Separable Costs - Joint Costs $180,000 Salting Department Processing $27,000 Salted Peanuts 12,000 pounds 12,000 pounds $12/lb Raw Peanuts Peanuts Department Processing of 150,000 lb 65,000 pounds $3/lb Peanut Butter Paste Department Processing 16,000 16,000 pounds pounds $6/lb $12,000 Splitoff Point

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1. Compute unit costs per pound for products A, B, and C, treating Cas a byproduct. Use the NRV method for
allocating joint costs. Deduct the NRV of the byproduct produced from the joint cost of products A and B.
2. Compute unit costs per pound for products A, B, and C, treating all three as joint products and allocat-
ing joint costs by the NRV method.
Required
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1. Compute unit costs per pound for products A, B, and C, treating Cas a byproduct. Use the NRV method for allocating joint costs. Deduct the NRV of the byproduct produced from the joint cost of products A and B. 2. Compute unit costs per pound for products A, B, and C, treating all three as joint products and allocat- ing joint costs by the NRV method. Required

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Expert Answer

Step 1

Joint products:

Joint products are several products which are produced from a common production process up to the point of split-off

By products: 

By products are the products which are produced unintentionally along with the main product. By products have lower value than the primary product manufactured in the same process.

Net realizable value (NRV) method: 

NRV method is a method of joint cost allocation which takes into consideration additional costs required to be incurred in the further processing of the products.

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Formula to allocate joint cost as per NRV method: NRV of product Total NRV of production xTotal joint cost Cost allocated to joint product = Where, NRV = Sales value – Cost of further process or sell

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Step 2

1. compute the unit cost per pound for products A, B and C, if C is by-product:

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The statement for allocation of joint cost as per NRV method is, Product Quantity Separable NRV at Weighting Allocation processing split-off Unit Final sale sales of joint price $12 $3 value cost cost $144,000 $195,000 $339,000 $27,000 $117,000 $195,000 $312,000 $46,800 $78,000 $124,800 A 12,000 65,000 77,000 0.375 0.625 B Total The statement for the calculation of cost per pound is, Units ($) Cost per unit ($) Product Allocation of Separable processing cost ($) 27,000 Total cost ($) joint cost ($) A 46,800 78,000 73,800 78,000 12,000 65,000 6.15 B 1.20 Total 124,800 27,000 151,800 77,000

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Step 3

Conclusion:

 Hence, the unit costs per pound of Product A, B and C is computed ...

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Product C Amount ($) Particulars Selling price per unit Less: Gross margin (10%) 6.00 0.60 1.20 Less: Marketing cost (20%) 4.20 Cost per unit

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