During September, the company processed 7,000,000 litres of raw milk at $0.062 p

Question

During September, the company processed 7,000,000 litres of raw milk at $0.062 per litre, paid $760,000 in direct labour costs and applied $1,200,000 of manufacturing overhead to the raw milk processing department. Production during September yielded 2,000,000 litres of homogenized milk, 600,000 litres of 2% milk and 200,000 litres of whipping cream. The whipping cream is processed further into cans of whipped topping. There were 200,000 cans of whipped topping produced. This second process cost $360,000 in September. Selling prices of the products are as follows: $1.60 per litre of homogenized milk $1.70 per litre of 2% milk .$2.86 per can of whipped topping Based on this information, using the net realizable value method (NRV) of allocating joint costs and considering that all products are main products (that is, not by-products), how much of the joint costs would be allocated to the cans of whipped topping? a) $114,433 b) $212,000 c) $326,433 d) $572,000

Explanation / Answer

Solution:

Hence joint costs to be allocated to Cans of whipped topping = $114,514.

Note: In the options % allocation is rounded off to 2 decimal places, as share in joint cost of whipped topping comes at = $212,000 / $4,432,000 = 4.78%, if we allocate 4.78% of $2,394,000 then allocated joint cost comes at $114,433

Computation of Joint Cost Particulars Amount Raw milk (7000000*$0.062) $434,000.00 Direct labor $760,000.00 Manufacturing overhead $1,200,000.00 Joint cost $2,394,000.00

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