Chapter 7, Problem 42P

1.

To determine

Ascertain the joint cost to be allocated to the products under the relative sales value method.

Explanation of Solution

Compute the sales value at split off:

Particulars	Smooth	Silken	Total
Production	80,000	120,000
(×) Sales Price	$2.40	$3.90
Sales value of production	$432,000	$468,000	$900,000

Table (1)

Compute the percentage of net realizable value:

Product Smooth:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Smooth}}{\text{Total Sales value of Production}}\\ =\frac{\$432,000}{\$900,000}\\ =0.48\\ =48\%\end{array}$

Silken:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Silken}}{\text{Total Sales value of Production}}\\ =\frac{\$468,000}{\$900,000}\\ =0.52\\ =52\%\end{array}$

Allocate the joint costs:

Particulars	Smooth	Silken	Total
Allocation percentage	48%	52%
Allocated joint costs	$201,600	$218,400	$420,000

Table (2)

2.

To determine

Ascertain the joint cost to be allocated to the products under the physical measure method.

Explanation of Solution

Compute the cost to be allocated under physical measure method:

Particulars	Smooth	Silken	Total
Production	180,000	120,000	300,000
Allocation percentage	60%	40%
Allocated joint costs	$252,000	$168,000	$420,000

Table (3)

Compute the percentage of net realizable value:

Product Smooth:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Smooth}}{\text{Total Sales value of Production}}\\ =\frac{\$180,000}{\$300,000}\\ =0.60\\ =60\%\end{array}$

Silken:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Silken}}{\text{Total Sales value of Production}}\\ =\frac{\$12,000}{\$300,000}\\ =0.40\\ =40\%\end{array}$

3.

To determine

Ascertain the joint cost to be allocated to the products under the net realizable value method.

Explanation of Solution

Compute the net realizable value:

Particulars	Smooth	Silken	Total
Production (A)	180,000	120,000
(×) Sales Price (B)	$2.40	$3.90
Sales value of production (A×B)	$432,000	$468,000	$900,000
Individual separable cost (C)	$1.40	$0.90
Less: Separable costs (A×C)	$252,000	$108,000	$360,000
Net Realizable Value (NRV)	$180,000	$360,000	$540,000

Table (4)

Compute the percentage of net realizable value:

Product Smooth:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Smooth}}{\text{Total Sales value of Production}}\\ =\frac{\$252,000}{\$360,000}\\ =0.3333\\ =33.33\%\end{array}$

Silken:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Silken}}{\text{Total Sales value of Production}}\\ =\frac{\$108,000}{\$360,000}\\ =0.6667\\ =66.67\%\end{array}$

Allocate the joint costs:

Particulars	Smooth	Silken	Total
Allocation percentage	33.33%	66.67%
Allocated joint costs	$140,000	$280,000	$420,000

Table (5)

4.

To determine

Ascertain the joint cost to be allocated to the products under the physical measure method.

Explanation of Solution

Compute the cost to be allocated under physical measure method:

Particulars	Smooth	Silken	Total
Production	180,000	120,000	300,000
Allocation percentage	60%	40%
Allocated joint costs	$252,000	$168,000	$420,000

Table (6)

Compute the percentage of net realizable value:

Product Smooth:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Smooth}}{\text{Total Sales value of Production}}\\ =\frac{\$180,000}{\$300,000}\\ =0.60\\ =60\%\end{array}$

Silken:

$\begin{array}{c}\begin{array}{l}\text{Net Realizable}\\ \text{Value Percentage }\end{array}\}\text{ = }\frac{\text{Sales value of Production for Silken}}{\text{Total Sales value of Production}}\\ =\frac{\$12,000}{\$300,000}\\ =0.40\\ =40\%\end{array}$