Question

Master Company processes a ra Magna can be sold for $50 a batch of Magna and Delta processes a raw material that produces two joint products - Magna and Delta. At split-off cold for $5.00 per pound and Delta can be sold for $7.00 per pound. It costs 590 to produce pa and Delta. Each batch contains 14 pounds of Magna and 6 pounds of Delta Required a) Allocate the joint cost of pre the joint cost of producing Magna and Delta using the physical measurement method b) Allocate the joint cost of producing Magna and Delta ore using the relative sales value method. C) The sales manager has advised that a batch of 6 pounds of Delta can be processed further at an additional cost of $20. With this additional processing, the 6 pounds of Delta can be sold for $9.00 a pound. Allocate the $90 cost to Magna and Delta using the net realizable value method if Delta is processed further. d) Based on the information in part c), Information in part c), should Master Company process the Delta further?

Answer 1

a)a batch contains 14 pounds of magna and 6 pounds of delta,so total quantity in a batch=14+6=20 pounds.

total cost to produce one batch =$90,hence the cost allocation under physical measurement method is as follows,

joint cost allocated to magna=$90x14/20=$63

joint cost allocated to delta=$90x6/20=$27

b)if it is sold ,then total revenu will be 14*5+6*7=70+42=112.,ratio of sales revenue is

magna=70/112=62.5%

delta=42/112=37.5

hence joint cost allocation under relative sales value method is

magna=90*62.5%=$56.25

delta=90*37.5%=$33.75

c)if further processed,then net realisable value of

magna=14*5-63=7

delta(further processed)=6*9-27-20=7

the ratio of net realisable value is 7:7=1:1

so the allocation of $90 under NRV method is

magna=90*1/2=45

delta=90*1/2=45

d)if not processed the delta further,then net income will be 14*5+6*7=112

if processed further,then net income will be 14*5+6*9-20=104.

from the 2 calculations,the net income is higher if not processed further,hence required to company not to processs further.