[Anonymous]

LM Enterprises produces two products in a common production process, each of which is processed

further after the split-off point. Joint costs incurred for the current month are $36,000. The following

information for the current month was also gathered:

Product Units produced Units sold Separable costs Selling price per unit

L 10,000 9,500 $20,000 $ 8

M 5,000 4,000 40,000 20

What amount would be the joint cost allocated to product M, assuming that LM Enterprises uses the

estimated net realizable value method to allocate costs?

a. $20,000

b. $12,000

c. $15,000

d. $18,000

Explanation

Choice “d” is correct.

I don’t know how to get the answer D, but I keep getting the answer C.

My calculation is

NRV for L: 9,500 x 8 -20,000= 56,000

NRV for M: 4,000 x 20 – 40,000 = 40,000

40/96 * 36,000 = $15,000

Can anybody show me how to get D?

[Anonymous]

NVM, I think i got the answer.

I miss the word, “estimated.”

Because it is estimated, so use the budget unit

NRV for L = 10,000 x 8 – 20,000 = 60,000

NRV for M = 5,000 x 20 – 40,000 = 60,000

6/12 x 36,000 = 18,000

Please correct me if I am wrong.

[Anonymous]

It doesn't have anything to do with “Estimated” per se, your conclusion should draw from the fact that you would calculate the allocation base based on production not the units sold so you would use the 10,000 and 5,000 for the base.

[Author]

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