Joint Cost: NRV from 2013 AICPA BEC released question #22

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  • #177620
    Anonymous
    Inactive

    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?

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  • #412795
    Anonymous
    Inactive

    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.

    #412796
    Anonymous
    Inactive

    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.

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