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Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $50,000, and 14,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit. Required: 1. Allocate the $50,000 joint costs using the estimated net realizable value method. 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? Show supporting computations.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 7, Problem 27E
Textbook Problem
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Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $50,000, and 14,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit.

Required:

  1. 1. Allocate the $50,000 joint costs using the estimated net realizable value method.
  2. 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? Show supporting computations.

1.

To determine

Allocate the joint costs using the estimated net realizable value method.

Explanation of Solution

Net realizable value method: Net realizable value method is used if there is no ready market price for the individual products at the split-off point. In this case, hypothetical sales value is obtained for each joint product to approximate the sales value at split-off. Then, the net realizable value method is used to prorate the joint costs depending upon each products’ share of hypothetical sales value.

Calculate the allocation of joint cost to overs and unders:

ParticularsOversUnders
Joint cost (a)$50,000 $50,000
Percent of hypothetical market value (b)(1) 0...

2.

To determine

State whether Incorporation S must sell overs at split-off or process it further.

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Chapter 7 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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